What Percentage of Income Should Your Mortgage Be?
The Two Ratios Lenders Use
Front-End Ratio (Housing Ratio)
Total monthly housing costs ÷ gross monthly income
Housing costs include:
- Mortgage principal and interest
- Property taxes
- Homeowner's insurance
- HOA fees (if any)
- PMI (if down payment < 20%)
Target: under 28%
Back-End Ratio (Total Debt-to-Income)
All monthly debt payments ÷ gross monthly income
Includes all of the above plus:
- Car loans
- Student loans
- Minimum credit card payments
- Any other debt obligations
Target: under 36% (conventional); up to 43-50% for some loans
Quick Reference
| Gross Annual Income | 28% Max Monthly Housing |
|---|---|
| $50,000 | $1,167 |
| $60,000 | $1,400 |
| $75,000 | $1,750 |
| $90,000 | $2,100 |
| $100,000 | $2,333 |
| $125,000 | $2,917 |
| $150,000 | $3,500 |
What Banks Approve vs. What You Should Spend
This is critical: banks and mortgage lenders will often approve you for far more than the 28% guideline.
FHA loans allow up to 31% front-end and 43% back-end. Conventional loans may go up to 45% back-end. Some lenders push even higher.
Why they approve more: They make money from originating loans. Their risk is spread across thousands of borrowers. Your risk is concentrated in your one financial life.
You can decline to use all the approval you receive. Getting pre-approved for $500,000 doesn't mean you should buy a $500,000 house.
The Full Cost Calculation
Before applying the 28% rule, make sure you're calculating the real monthly cost — not just the principal and interest payment:
Example: $350,000 home, 20% down, 7% 30-year fixed
| Cost Component | Estimate |
|---|---|
| Mortgage P&I ($280K loan) | $1,864 |
| Property taxes (1.25%) | $365 |
| Homeowner's insurance (0.4%) | $117 |
| Maintenance reserve (1%) | $292 |
| Total monthly cost | $2,638 |
To keep this at 28%, you'd need a gross income of ~$113,000. The mortgage payment alone is only 16.5% of that income — but the full housing cost is 28%.
Common Mistake: Comparing Mortgage to Rent
A $2,000 mortgage payment doesn't compare directly to $2,000/month rent. The mortgage is just part of the cost. Adding taxes, insurance, and maintenance may bring the real monthly cost to $2,800-$3,000 — making the comparison very different.
Always compare total housing costs, not just the mortgage.
When 28% Is Too Tight
In some markets, 28% makes homeownership essentially impossible at most income levels. In this case:
- Up to 33-35% may be acceptable if you have no other debt, stable income, and a strong emergency fund
- Consider whether the trade-offs align with your priorities
- Run the rent vs. buy analysis — renting may be genuinely smarter
After the Purchase
If you buy and later find housing costs are straining your budget:
- Refinance if rates drop (reduces the P&I component)
- Contest your property tax assessment if overvalued
- Shop homeowner's insurance annually
- Increase income to grow into the payment
What you shouldn't do: let housing squeeze out retirement contributions for more than a year or two.
→ Rent vs. Buy — Interactive calculator comparing true long-term costs → Budgeting — Planning your full budget around housing and other costs