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How Much Mortgage Can I Afford?



General rule of thumb: when considering the average person’s lifestyle, you can afford a home that costs two-and-a-half times your annual salary.

Housing to Income Ratio

In order for lenders to ensure that they granting mortgage loans that a homeowner can afford, they require that specific debt to income ratios are met. As an example, the FHA guidelines require that your total mortgage expenses do not exceed 29% of your gross monthly income. To find this figure add the following monthly payments associated with home ownership and check to see what percentage the sum is in relation to your gross monthly income:

  • Estimated Mortgage Payment
  • Homeowner’s Insurance
  • Property Taxes
  • Hazard Insurance
  • Homeowner’s Dues


Estimated Mortgage Payment: $1,000.

Estimated Monthly Bills: $500.

Total Monthly House Payments: $1500.

Total Monthly Gross Income: $6000.

Affordability Calculation: $1500/$6000 = 25%

Debt to Income

Lenders will also take into consideration monthly debt to income ratios. Monthly debt includes those recurring payments that are revolving or installment loans such as car loan payments, credit cards, and student loans. As an example, the FHA sets its maximum limitation at 41%, which means in order to qualify for an FHA home loan, your debt cannot exceed 41% of your monthly gross income.

Affordability Calculation: $6000 x 41% = $2460.00

Homes Requires Maintenance

Before you take the leap into a mortgage that will leave you strapped, remember that owning a home accrues more costs than just the monthly mortgage payment. You will acquire additional bills necessary to maintain the home such as oil, electricity, and water to name a few. You will need to ensure that you have factored these in before committing to a monthly mortgage payment.

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