What's the Right % of Income to Put Towards Your Mortgage?

What percentage of your income should go towards your mortgage? 

Mortgage lenders follow specific affordability guidelines when approving a person for a mortgage. The guidelines make good intuitive sense, and you can use them to help you plan for a comfortable mortgage payment. Here are the four most common affordability formulas to apply: 

1. The 2x or 3x income rule indicates borrowing two to three times your household income to buy a home. For instance, if you earn an income of around $75,000, this rule suggests borrowing between $150,000 and $225,000.

2. The 28/36 rule: The 28% indicates that your monthly mortgage payment, including principal, interest, insurance, taxes, and HOA fees, should not exceed 28% of your gross monthly income. That would mean a mortgage payment of $1,750 for a $75,000 income.

The 36% part of the formula indicates that your total monthly debt payments, including the mortgage, should not exceed 36% of your monthly income. That would mean $2,250 for a $75,000 income. In this scenario, your "other debts" outside of your mortgage can't exceed $500/month.

3. The 35/45 rule indicates that your total monthly debt payments, including your mortgage, should be kept under 35% of your pretax income and 45% of your after-tax income. For a $6,250/month income ($75K/year), this would mean monthly debt payments of $2,187 or less. This is slightly more lenient than the 28/36 rule above, but close.

4. The 25% rule indicates that your monthly housing payment should be 25% or less of your monthly gross income. For a $6,250 monthly income, your mortgage payment should be $1,214 or less. This is far stricter than the other methods, ensuring that you are in a comfort zone of affordability.

Use all four methods to calculate affordability for yourself, then you check out my Affordability Calculator to see what price of home you can buy, based on the monthly payment you can make.