To determine how much mortgage you can afford, lenders typically use your income and debt levels to calculate your debt-to-income (DTI) ratio. The common guideline is the 36/43 rule:
- Your monthly mortgage payment (including principal, interest, taxes, and insurance) should not exceed 36% of your gross monthly income.
- Your total monthly debt payments (including your mortgage and other debts like car loans or credit cards) should not exceed 43% of your gross monthly income.
For example, if you earn $3,000 per month, your mortgage payment should be no more than $1,080 (3,000 x 0.36), and your total debt payments should not exceed $1,290 (3,000 x 0.43)
. Some lenders use the 28/36 rule, where housing costs should be no more than 28% of your gross income and total debts no more than 36%
. FHA loans have slightly different limits, often 31% for housing costs and 43% for total debts, with more flexible down payment and credit score requirements
. Another rule of thumb is that lenders often cap the mortgage amount at about 4 to 4.5 times your annual income, though this varies by lender and your financial profile
. To get a precise estimate, you can use mortgage affordability calculators that consider your income, debts, down payment, and interest rates to estimate how much you can borrow and afford monthly
. In summary, you can roughly estimate your affordable mortgage payment by calculating 28-36% of your gross monthly income for housing costs and ensuring your total debts stay below 43%. From there, lenders will evaluate your full financial picture to determine the exact amount they can lend you
