What Percentage of Your Income Should Your Mortgage Be?

The mortgage industry has long relied on the 28/36 rule as the gold standard for determining what percentage of your income should mortgage payments consume. Here’s how it breaks down:

• Front-End Ratio (28%): Ideally, your monthly mortgage payment—including principal, interest, taxes, and insurance (PITI)—should not exceed 28 percent of your gross monthly income.
• Back-End Ratio (36%): Your total monthly debt obligations, including your mortgage, car loans, credit cards, student loans, and other debt payments, should stay below 36 percent of your gross monthly income.

Lenders use these percentages as starting points, but your personal “sweet spot” depends on several key factors:

• Location: In expensive housing markets like San Francisco or New York, sticking to 28 percent might be virtually impossible. In more affordable regions, staying below this threshold is more realistic and gives you financial breathing room.
• Existing Debt: If you carry significant student loans or car payments, you’ll need to allocate less toward housing. Someone with minimal debt can comfortably spend more on their mortgage while maintaining financial health.
• Income Stability and Growth: A secure job with predictable income increases allows you to commit to higher payments. If your income fluctuates or you work in an unpredictable industry, consider staying well below maximum percentages.
• Emergency Preparedness: Homeownership comes with surprise expenses. The lower your mortgage-to-income ratio, the more capacity you have to handle a new roof, medical emergency, or temporary job loss without financial disaster.

What percentage of income should go to mortgage payments ultimately depends on your complete financial picture. While lenders might approve you based on standard ratios, your comfort level and financial goals should be the deciding factors in how much house you can truly afford.

The Case for Keeping Costs Low

While many Americans stretch to the maximum they qualify for, those who keep their housing costs modest often experience significant financial advantages. Households spending less than 25 percent of their income on housing typically build emergency savings faster and weather financial setbacks more easily. When the unexpected happens, you’ll have the margin to absorb the shock without risking foreclosure.

Money not spent on housing can be invested elsewhere, and many financial advisors suggest that the gap between a modest mortgage and what you could afford represents your best wealth-building opportunity. College funds, vacation homes, early retirement—these goals become more achievable when your mortgage isn’t consuming every spare dollar.

With lower fixed housing costs, you can gradually improve your property with cash rather than financing every upgrade. This approach builds equity faster and avoids the trap of continuously borrowing against your home. The sweet spot often lies in finding a home that meets your needs without maximizing what lenders say you can afford. Your future self may thank you for the financial breathing room that comes from keeping your mortgage percentage modest.

When Higher Percentages Make Sense

While keeping that percentage of your income on the lower side generally brings financial benefits, there are legitimate scenarios where exceeding the recommended 28 percent makes practical sense. In high-cost metropolitan areas, adhering strictly to this percentage might mean either an impossible commute or renting indefinitely. Sometimes, paying more for housing aligns with other life priorities.

For households in rapidly appreciating markets, stretching to buy may be financially sound despite higher monthly costs. If you live in an area where home values consistently outpace inflation, allocating more income to housing can work as a forced savings plan that builds wealth through equity.

Some buyers intentionally choose higher housing costs to achieve specific lifestyle benefits—walkability to work can eliminate car expenses, while energy-efficient homes may significantly reduce utility bills. When these savings offset higher mortgage costs, the net impact on your budget might be neutral despite the higher percentage going toward housing. For those working from home, investing more in housing with dedicated office space might be economically rational compared to maintaining separate work facilities.

Tips to Find Your Personal Sweet Spot

So, what percentage of your income should your mortgage be? The right number varies based on your unique circumstances, goals, and comfort with financial risk. Here are practical ways to determine your mortgage sweet spot:

• Calculate your total take-home pay after taxes and retirement contributions, not just your gross income.
• List all your non-negotiable monthly expenses beyond housing, including childcare, medical costs, and minimum debt payments.
• Run a “stress test” by imagining your income drops by 20 percent. Would you still make mortgage payments comfortably?
• Factor in home maintenance costs. Experts recommend budgeting 1 percent of your home’s value annually for upkeep.
• Start with a pre-approval to understand your maximum, then work backward to a comfortable monthly payment.
• Consider starting with a more modest home and letting your housing costs grow with your income over time.
• Talk to financial advisors about balancing mortgage costs with other financial goals specific to your situation.
• Look beyond the purchase price to consider commuting costs, HOA fees, and utility expenses in different locations.

Ready to find a home that fits both your lifestyle and your budget? Contact your local REMAX agent to discuss your housing goals and discover properties that match your mortgage sweet spot.