How Much of Your Monthly Income Should Go to a Mortgage?

How much of your monthly income should go to a mortgage? It depends on factors like debt, income stability, and local housing costs. A common guideline analysts recommend is the 28% rule. This strategy suggests spending no more than 28% of your gross monthly income on housing expenses. However, this benchmark can vary based on your financial situation, down payment size and the type of loan you choose.

A financial advisor can help you determine how much you can afford to spend on a home and how your mortgage impacts your broader financial plan.

Understanding the 28/36 Rule

The 28/36 rule is a commonly used guideline for allocating income toward housing and debt. The “28” refers to the maximum percentage of your gross monthly income that should be spent on housing. This includes your mortgage payment, property taxes, homeowners insurance, and possibly HOA fees. This portion is known as the front-end ratio.

For example, if your gross monthly income is $7,000, the 28% rule suggests that your total housing costs should not exceed $1,960. That figure includes everything tied to the cost of owning the home, not just the mortgage itself.

The second number, 36, refers to your back-end ratio. This includes all monthly debt payments—credit cards, student loans, car loans and housing costs combined. If your total monthly debt exceeds 36% of your gross income, lenders may see you as a higher risk. It won’t matter if your housing costs fall under the 28% mark.

How Lenders Decide How Much You Can Borrow

Lenders often use this ratio when determining how much home you can afford. If your projected housing expenses cross the 28% threshold, you may find it harder to qualify for a conventional loan. You’ll likely need a larger down payment or strong credit to close the deal. While not a hard rule, the 28% guideline helps borrowers assess whether a mortgage payment is likely to fit within their existing income and budget.

Alternative Strategies for Setting a Mortgage Budget

You’ll need a smart budget to make your housing dreams come true.

Beyond the 28/36 rule, several other fixed-percentage strategies offer alternative ways to think about mortgage affordability. These rules can reflect different financial strategies or respond to changing interest rate environments and local housing markets.

One is the 25% after-tax rule. This strategy recommends keeping your mortgage payment at or below 25% of your net (take-home) monthly income. This approach accounts for taxes and deductions already taken from your paycheck, offering a more conservative limit. It leaves more room for savings, discretionary spending, or unexpected expenses.

Another is the 30% of gross income rule, sometimes used as a benchmark for overall housing costs, particularly in urban markets with higher property values. While slightly looser than the 28% front-end ratio, it provides a simple, rounded figure that some households use for budgeting.

A less common method is the 35% rule, which some lenders apply when evaluating high-income borrowers with minimal debt. This rule assumes more disposable income is available, allowing for a higher housing cost allocation without straining other parts of the budget.

Some people take this a step further by using a percentage of net income instead. While gross income is commonly used by lenders, budgeting based on take-home pay—such as limiting housing costs to 30% of net income—can provide a more accurate sense of what’s manageable day to day.

Gross Income vs. Net Income: Which Should You Use?

Using gross income allows for easy comparison with standard rules like the 28/36 guideline, but it doesn’t reflect how much money you actually take home each month. Instead, it includes your total earnings before taxes, retirement contributions and other deductions.

Net income, on the other hand, represents your actual monthly cash flow after deductions. Budgeting based on net income can offer a more realistic view of what you can afford without stretching yourself thin. For example, if your gross income is $7,000 but your net income is $5,200, then allocating 30% of net income to housing expenses would cap your budget at $1,560—much less than the $1,960 limit suggested by the 28% rule.

Using net income may lead to a more conservative housing budget. It can also help account for other financial goals, such as savings, debt repayment or discretionary spending.

What Does it Mean to Be Cost-Burdened?

Analysts consider a household cost-burdened when it spends more than 30% of its gross income on housing. This threshold, defined by the U.S. Department of Housing and Urban Development (HUD), includes all housing costs—mortgage payments, property taxes, insurance and utilities. Once housing expenses exceed this level, it gets harder to cover basics like food, healthcare, transportation or savings.

Severe cost burden occurs when housing consumes more than 50% of gross income. In these cases, households may be more vulnerable to financial stress, even if their income is relatively high. Being cost-burdened doesn’t necessarily mean someone can’t pay their mortgage, but it does suggest that their budget may lack flexibility.

Buyers in high-cost areas or those with variable income may face a higher risk of exceeding the 30% threshold, especially if they underestimate future expenses such as rising property taxes, maintenance costs, or inflation.

Bottom Line

Mortgage affordability isn’t a one-size-fits-all calculation. While general rules offer useful benchmarks, personal income, spending habits, and debt levels often tell a more complete story. Weighing different methods—whether based on gross income, net income, or fixed percentages—can help shape a housing budget that fits comfortably within the context of your broader financial life.

Tips for Financial Planning

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