How Much of Your Take-Home Pay Should Go Toward a Mortgage?

When you’re shopping for a home, one of the most critical questions is whether you can realistically afford the monthly payments. Your income—both what you earn before and after taxes—determines your purchasing power. However, there’s no universal formula that applies to everyone. Instead, lenders and financial advisors rely on several different percentage-based models to estimate how much of your take-home pay should go toward a mortgage. Understanding these methods will help you make an informed decision about what works best for your financial situation.

Finding Your Ideal Mortgage Payment Percentage

The financial industry has developed several benchmark models over decades of lending experience. Each one takes a different approach to calculating the portion of your income that should go toward housing costs. The key is finding a model that fits your unique circumstances—whether you have substantial existing debt, a variable income, or simply want to be conservative with your housing expenses.

The 28 Percent Rule: Your Starting Point

The 28 percent rule is perhaps the most traditional and widely recognized guideline. It states that your monthly mortgage payment—including property taxes and homeowner’s insurance—should not exceed 28 percent of your gross monthly income (what you earn before taxes are deducted).

Let’s look at a practical example. Suppose your household earns $7,000 each month in gross income. Under the 28 percent model, multiply $7,000 by 0.28, and you get approximately $1,960. That would be your target maximum for monthly housing costs.

This rule has been popular with mortgage lenders for years because it provides a clear, simple boundary. However, it doesn’t account for other debts you might be carrying, which is why more comprehensive models have evolved.

The 28/36 Model: Balancing Mortgage and Other Debt

The 28/36 model expands on the basic 28 percent rule by adding a second layer of analysis. Under this approach, 28 percent of your gross income should go to your mortgage payment, while no more than 36 percent of your gross income should cover all your debt obligations combined. These obligations include credit cards, car loans, student loans, utility payments, and any other recurring debts.

Using the same $7,000 monthly gross income example: 36 percent equals $2,520. Subtracting your $1,960 mortgage payment leaves $560 available for all other debts. This model gives you a more complete picture of your total financial obligations, making it useful if you’re carrying significant non-mortgage debt.

The 28/36 framework has become especially popular with conventional lenders because it ensures borrowers won’t become overextended with housing costs while simultaneously managing other financial responsibilities.

More Conservative Approaches: 35/45 and 25 Percent Models

For those seeking additional financial breathing room, alternative models offer more conservative guidelines.

The 35/45 model provides two calculation methods. The first states that no more than 35 percent of your gross household income should go to all your debt, including your mortgage. The second allows up to 45 percent of your net pay (after-tax dollars) to cover total monthly debt.

Taking our $7,000 gross income example: 35 percent equals $2,450 for all debt. However, if your take-home pay after taxes and deductions is $6,000, then 45 percent of that is $2,700. This gives you a range of $2,450 to $2,700 for all debt payments, offering flexibility depending on your situation.

The 25 percent post-tax model is the most restrictive. It uses your net income (take-home pay) rather than gross income and limits your monthly mortgage payment to 25 percent of what you actually receive after taxes. If your take-home pay is $6,000 monthly, your mortgage should not exceed $1,500.

This approach leaves you with the least amount directed toward housing, making it ideal if you’re working toward other financial goals, paying down substantial existing debt, or prefer maximum monthly flexibility.

Choosing the Right Model for Your Situation

Each model serves a different purpose. Here’s how to decide:

• Choose the 28% rule if you have minimal existing debt and want the simplest calculation
• Choose the 28/36 model if you have typical levels of credit card, car, or student loan debt
• Choose the 35/45 model if you want more flexibility and have varied income sources
• Choose the 25% post-tax model if you carry substantial debt, have significant financial goals beyond homeownership, or prefer maximum monthly cash flow

Calculating What You Actually Can Afford

Beyond applying percentage rules, you need to assess your complete financial picture. Start by gathering these numbers:

Your Income: Document both gross and net monthly earnings from your primary job and any side income. Your pay stub provides these figures. For variable income, use your most recent tax returns as a guide.

Your Existing Debt: List everything you currently owe—credit cards, student loans, car loans, personal loans. Remember, debt is distinct from variable expenses like groceries and gas.

Your Down Payment: Determine how much cash you can invest upfront. A 20 percent down payment typically eliminates private mortgage insurance (PMI) charges, but it’s not required to purchase a home. Higher down payments reduce your monthly obligation.

Your Credit Score: Better credit typically qualifies you for lower interest rates. Since interest rates directly affect your monthly payment, improving your credit before applying can make a substantial difference.

What Lenders Look For: Understanding Your DTI

Mortgage lenders focus heavily on your debt-to-income ratio (DTI)—a metric that reveals how much of your gross income goes toward all debt payments. Here’s how to calculate it: Add up all monthly debt payments, then divide by your gross monthly income.

Example calculation: You earn $7,000 monthly. Your car payment is $400, student loans are $200, credit card payment is $500, and current housing payment is $1,700. Total debt: $2,800. Divide $2,800 by $7,000 to get your DTI of 40 percent.

Generally, aim for a DTI between 36 and 43 percent. Some lenders accept higher ratios, but lower DTIs make pre-approval more likely. Since requirements vary by lender, shopping around for the best terms is essential.

Strategies to Reduce Your Monthly Mortgage Costs

Your mortgage payment represents a significant portion of your overall finances. Several strategies can help minimize it:

Purchase a less expensive property: Your lender’s maximum approval amount doesn’t mean you must spend that much. Buying below your approved limit directly reduces your monthly payment.

Increase your down payment: More cash invested upfront means a smaller loan amount and lower payments. If possible, save aggressively to secure this advantage.

Secure a lower interest rate: Interest rates depend largely on your credit score and DTI. Paying down existing debts accomplishes two things: it lowers your DTI and can improve your credit score, both of which may qualify you for better rates.

Shop multiple lenders: Different institutions offer different rate packages. Comparing offers ensures you get competitive terms.

Don’t Forget: Additional Homeownership Expenses Beyond Your Mortgage

While your monthly mortgage payment is the largest homeownership cost, it’s not the only one. Your monthly budget must accommodate:

Maintenance and upkeep: Homes require ongoing care—roof repairs, HVAC servicing, plumbing fixes, and seasonal maintenance. If you have a pool or other features, budget for their specialized care.

Lawn and landscaping: Unless your community provides lawn maintenance, you’ll handle this yourself or hire professionals.

Home improvements and repairs: Future needs might include replacing appliances, upgrading flooring, repainting, or addressing issues revealed during your inspection. Use the home inspection report as a negotiating tool—if items are outdated, you can request repairs or price reductions.

Property taxes and insurance: These often increase over time, so account for potential rises in your long-term budget.

Understanding how much of your take-home pay should go toward a mortgage involves more than applying a single percentage. By evaluating your complete financial picture, considering multiple models, and understanding what lenders assess, you’ll make a confident decision that supports both your homeownership dreams and your broader financial health.