What Should Your Mortgage Be Based On Your Monthly Income?

Although the so-called 28% rule is a popular method to calculate affordability, it’s definitely not the only game in town. There’s also the 35%/45% model, in which your total monthly debt, including mortgage payment, shouldn’t exceed 35% of your gross income or 45% of your net income, which is the income remaining after taxes and other contributions are withheld.


Depending on how high your other monthly debt obligations are, this method of calculation can be more generous than the 28% rule. For example, $5,000 per month gross income times 35% equals $1,750 per month. That’s $350 per month higher than using the “28% rule” but other debt payments such as car payments, student loans, and credit cards must also be covered by the $1,750 per month.

While such guidelines are helpful in determining affordability and the price range of homes that you should be targeting, lenders have the ultimate say in the size of the loan that they’re willing to approve you for. The industry term for the percentages that we’ve been discussing is your debt-to-income ratio or DTI. For conventional loans, such as those securitized by government agencies Fannie Mae and Freddie Mac, the preferred DTI is 36%, with a maximum in the 43% to 45% range. Insured loans from the Federal Housing Administration (FHA) may have some additional leeway, with up to a 50% DTI getting approved.