What Percentage of Your Take-Home Pay Should Your Mortgage Consume?

When evaluating how much you can afford to spend on a home, your income is the primary determining factor. Lenders want to see that you have sufficient earnings to reliably cover your mortgage payments. However, there’s no universal formula that applies to everyone—different financial situations call for different approaches. The key is understanding which model aligns best with your personal circumstances.

Understanding Income-Based Mortgage Allocation Models

The relationship between your income and your mortgage payment has been standardized across the lending industry through several widely-accepted models. Each provides a different lens for calculating how much of your take-home pay should realistically go toward housing costs.

The most foundational approach is the 28% principle, which suggests limiting your mortgage payment to 28% of your monthly gross income, including property taxes and homeowner’s insurance. This means if you earn $7,000 monthly, your housing payment shouldn’t exceed roughly $1,960. This model focuses solely on housing obligations.

An expanded framework, the 28/36 model, layers in your broader financial picture. While 28% of gross income goes to housing, an additional 8% (for a total of 36%) can cover other household debt—credit cards, car payments, utilities, and student loans. With the same $7,000 income, you’d have $2,520 available for non-housing obligations alongside your $1,960 mortgage payment.

The 35/45 alternative takes a different computational approach. It caps all debt (including your mortgage) at 35% of gross monthly income, or alternatively, at 45% of your net take-home pay. This dual threshold acknowledges that after-tax income is ultimately what reaches your bank account. Using $7,000 gross income ($6,000 after taxes), your total debt ceiling would range from $2,450 to $2,700.

For those prioritizing financial cushion, the 25% net-income model is the most conservative. It limits your mortgage to just 25% of what you actually take home after taxes. Someone with $6,000 monthly take-home pay would keep mortgage payments to $1,500 or less. This approach works best if you’re managing significant existing debt or prefer maximum financial flexibility.

Evaluating Your Personal Financial Position

Before selecting which model suits you, you need to assess several components of your financial health:

Your income picture should include both gross and net figures—check your recent pay stubs or tax returns. If your earnings fluctuate (freelance work, commission-based roles), averaging your past year’s income provides a more realistic baseline.

Your debt inventory encompasses everything you owe: credit cards, student loans, car financing, personal loans, and any other monthly obligations. This differs from variable expenses like groceries or gas that might change month-to-month.

Your down payment capacity directly impacts your monthly burden. While a 20% down payment typically eliminates private mortgage insurance (PMI) costs, it’s not mandatory. A larger upfront payment reduces what you need to borrow, lowering your monthly payment proportionally.

Your credit profile determines the interest rate you’ll qualify for. Strong credit scores unlock the lowest available rates; conversely, lower scores mean higher rates and therefore higher monthly payments. This makes creditworthiness a critical variable in your affordability calculation.

How Lenders Assess Your Mortgage Eligibility

Financial institutions rely on your debt-to-income ratio (DTI) as their primary metric for determining how much you can borrow. Your DTI is calculated by totaling all monthly debt payments and dividing by your gross monthly income.

For example, if you earn $7,000 monthly with a $400 car payment, $200 student loan payment, $500 credit card obligation, and existing $1,700 housing payment, your total monthly debt is $2,800. This yields a DTI of 40% ($2,800 ÷ $7,000).

Generally, lenders prefer DTI ratios between 36% and 43%, though requirements vary by institution. A lower DTI strengthens your pre-approval prospects considerably. Shopping among multiple lenders is essential, as each has different DTI thresholds and lending standards.

Reducing Your Monthly Housing Obligation

If your initial mortgage calculations feel too high relative to your take-home pay, several levers can help bring monthly payments down:

Adjust your home price target. Just because a lender approves you for a certain loan amount doesn’t mean you must spend it all. Selecting a less expensive property directly translates to lower monthly payments.

Maximize your down payment. The more you pay upfront, the less you borrow and the lower your monthly cost. If possible, postpone your purchase to accumulate additional savings.

Improve your interest rate. Since rates depend heavily on credit scores and DTI ratios, paying down existing debt accomplishes two goals simultaneously: it lowers your DTI and can boost your credit profile, potentially qualifying you for better rate offers.

Beyond the Monthly Payment: The Full Cost of Homeownership

Your mortgage payment represents just one piece of the homeownership expense puzzle. Budget for ongoing costs that can add significant dollars over time:

Maintenance and upkeep require regular attention—everything from HVAC service to roof repairs. A home inspection report at purchase can reveal major issues to negotiate or use for price adjustment.

Lawn and grounds care fall on you unless your community includes this in HOA fees. Whether you hire services or handle it yourself, this recurring expense adds up.

Improvements and repairs emerge unpredictably—from replacing kitchen cabinets to addressing plumbing issues or updating fixtures. Building a maintenance reserve into your budget prevents financial surprises.

When shopping for a home, prioritize understanding the full cost of that housing payment relative to your take-home pay, not just whether your lender approves the loan amount. The right percentage is ultimately one that leaves you with sufficient take-home pay for living expenses, emergency savings, and financial goals beyond your mortgage obligation.