What percentage of income should go to a mortgage?

Deciding how much of your income should go toward a mortgage stands as one of the biggest financial choices you'll face when buying a home. While the classic 28/36 rule suggests limiting your housing costs to 28% of your gross income, your perfect balance depends on your unique financial situation.

Striking the right mix between owning a home and maintaining financial freedom creates the foundation for long-term stability. Your mortgage payment size impacts everything from daily spending to your capacity to save for retirement, education, or emergencies. Knowing your debt-to-income ratio helps you understand what mortgage options lenders will offer you. Both your credit score and the size of your down payment directly affect your loan terms and interest rate.

This guide breaks down the recommended percentage of income for mortgage payments, explains what makes up your monthly payment, and offers practical ways to budget for your monthly mortgage payment without stretching your finances too thin.

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What percentage of your income should go to your mortgage?

When figuring out how much to put toward housing, several financial guidelines can point you in the right direction. The most common approach is the 28% rule, which recommends keeping your monthly mortgage payment under 28% of your gross monthly income.

However, different financial frameworks offer alternative perspectives:

The 28/36% rule - This two-part guideline looks at both front-end and back-end ratios. Your housing costs shouldn't exceed 28% of your gross monthly income, while total debt payments (including your mortgage) should stay under 36%. For example, with a gross monthly income of $8,000, your mortgage payment should remain below $2,240.

The 35/45% rule - Under this approach, your total monthly debt shouldn't go beyond 35% of your pretax income or 45% of your after-tax income. Simply multiply your pretax income by 0.35 or your post-tax income by 0.45.

The 25% rule - This method works well if you prefer using net income. Keep your housing costs under 25% of your take-home pay after taxes.

Most mortgage lenders review your debt-to-income ratio (DTI) when deciding whether to approve your application. Typically, lenders want your monthly debt to stay below 43% of gross monthly income, though some accept ratios up to 50%.

Your credit score plays a major role in determining what mortgage amount you can qualify for. A higher score often leads to better loan terms and lower interest rates.

For a better understanding of what you might pay each month, use a mortgage calculator to estimate payments based on your income. Budgeting for your monthly mortgage payment ahead of time ensures you're ready for homeownership without stretching your finances too thin.

Before submitting your application, check current mortgage rates and understand what's included in your monthly payment beyond just principal and interest. You might need to focus on improving your DTI to qualify for your target loan amount.

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What does your monthly mortgage payment include?

Your monthly mortgage payment contains several important components beyond just the loan amount. Understanding these elements helps you determine what portion of your income should go toward housing costs.

Principal and interest

The foundation of your mortgage payment consists of principal and interest. The principal represents the actual money you borrowed to buy your home, while interest is what the lender charges for providing the loan. When you first start making payments, a larger share goes toward interest, but as you continue making payments, this balance gradually shifts toward reducing your principal.

Property taxes and homeowners insurance

Lenders typically collect funds for property taxes and homeowners insurance alongside your principal and interest. These amounts go into an escrow account, from which your lender pays these bills on your behalf when they come due. Property taxes fund local community services and vary based on your location and home value. Homeowners insurance protects your property against potential damage. These four elements—principal, interest, taxes, and insurance—form what mortgage professionals call PITI.

Private mortgage insurance (PMI)

If you make a down payment less than 20%, most lenders require private mortgage insurance (PMI). This fee protects the lender if you default on your loan. For conventional loans, PMI typically costs between 0.5% and 1% of your loan amount yearly, split into monthly payments. Once you build 20% equity in your home, you can ask to have PMI removed.

These components explain why your debt-to-income ratio matters so much to mortgage lenders. Then consider how to budget for your monthly mortgage payment to ensure it aligns with the recommended percentage of your income.

Mortgage approval requirements

When lenders review your mortgage application, they look at much more than just how much you earn. Knowing these requirements helps you prepare for the approval process with confidence.

Front-end vs. back-end ratios

Lenders rely on two different calculations to judge what you can afford. The front-end ratio shows what portion of your gross monthly income would go to housing costs. You can find this number by dividing your expected monthly mortgage payment by your monthly income before taxes. The back-end ratio takes a wider view by comparing all your debt payments to your income. These figures create the framework for determining what percentage of income should go toward mortgage payments. Check out what is included in your monthly payment to understand the full picture.

Debt-to-income ratio (DTI ratio) and its impact

Your DTI ratio plays a crucial role in loan approval. Most lenders want your monthly debts to stay under 43% of your gross monthly income, though some will go up to 50%. This number shows how comfortably you can handle a mortgage payment alongside your existing financial commitments. Visit what is a good debt-to-income ratio for more details or explore ways for improving your debt-to-income ratio.

Role of credit score and income stability

Your credit score tells lenders about your financial reliability. For conventional loans, you'll typically need at least 620, but this varies by loan type. Lenders examine your credit history to gauge how likely you are to make payments on time. Better scores unlock better interest rates. Learn how your credit score affects your mortgage for the full story.

Importance of down payment size

How much you put down affects both your approval chances and your monthly costs. While 20% down isn't required, larger down payments shrink your monthly obligation and help you avoid PMI. Use a mortgage calculator to see how different down payments change your situation and check current mortgage rates for the latest information.

Think about how to budget for your monthly mortgage payment to make sure you're financially ready.

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Lowering your mortgage monthly payment

Finding out your dream home's monthly payment exceeds the recommended percentage of your income doesn't mean giving up on homeownership. Several practical strategies can help reduce your monthly obligation without waiting for your income to increase.

Boost your credit score for quick improvements to mortgage terms. Lenders reward higher scores with better interest rates, potentially saving you thousands over the life of your loan. Even a modest score improvement can significantly cut your interest costs. 

Make a larger down payment if possible. Contributing more upfront means borrowing less, which directly lowers your monthly payment. As an added benefit:

✅ Down payments of 20% or more eliminate PMI requirements—a substantial monthly saving
✅ Lower loan amounts typically qualify for better interest rates
✅ Less borrowed money means less interest paid over time

Opt for a longer loan term as another effective strategy. Spreading your principal balance over 30 years instead of 15 creates lower monthly payments, though it increases total interest paid throughout the loan. This trade-off might make sense depending on your financial goals and cash flow needs.

Test different scenarios using a mortgage calculator to see how each approach affects your payments. Then create a plan to budget for your monthly mortgage payment that keeps your housing costs within an appropriate percentage of your gross monthly income.

FAQs

Still wondering about mortgage affordability? These questions address key financial factors for homebuyers weighing their options.

What exactly is the 28% / 36% rule?

The 28/36 rule works as a financial guideline that mortgage lenders use when reviewing your application. The first number (28%) indicates the maximum percentage of your gross monthly income that should go to housing costs, including your mortgage payment, property taxes, and insurance. The second number (36%) represents the ceiling for all your monthly debt payments combined. With a gross monthly income of $8,000, your housing costs should stay under $2,240, while your total debt payments shouldn't exceed $2,880. Following this rule helps you maintain a healthy debt-to-income ratio when applying for a mortgage.

What credit score do I need to have a lower monthly mortgage payment?

Most lenders require a minimum credit score of 620 for conventional loans, though this varies by loan type. A higher score can get you better interest rates, potentially saving thousands over your loan term. To raise your score, pay bills on time, reduce credit card balances, and avoid new credit applications before seeking a mortgage.

Should I put in a larger down payment?

Your down payment size directly influences your monthly mortgage costs. A larger upfront payment lowers both your loan amount and monthly obligation. Hitting the 20% threshold eliminates private mortgage insurance, creating significant monthly savings. Use a mortgage calculator to see how different down payments affect what's included in your monthly payment.

What's better: A longer loan term with lower monthly payment, or shorter loan term with less interest?

Extending your loan term spreads your principal balance over more years, lowering monthly payments. Switching from a 15-year to a 30-year mortgage can substantially reduce your monthly obligation, making it easier to stay within recommended income percentages. This approach means paying more interest over the life of the loan, but may be worth considering if monthly affordability is your main concern.

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