What Percentage of Your Income Should Go Toward a Mortgage?
Learn About the 28% and 36% Income Guidelines
Many mortgage lenders apply the 28% guideline when determining how much you can borrow to finance a home.
This guideline suggests that you should spend no more than 28% of your monthly gross income on your mortgage payment. This includes principal, interest, property taxes, homeowners insurance, and mortgage insurance if required by your loan.
For example, if your monthly gross income is $10,000, your mortgage payment should be no more than $2,800, according to the 28% guideline.
Lenders also utilize the 36% guideline during their decision-making process. The 36% guideline indicates that the total monthly cost of all your debt payments, including your mortgage, should not exceed 36% of your monthly gross income.
For instance, if your monthly gross income is $10,000 and you have monthly payments on a car, student loans, and your mortgage, the combined total of these debt payments should be no more than $3,600.
Are the 28% and 36% Income Guidelines Official Rules?
No, the 28% and 36% income guidelines are not official rules that mortgage lenders must adhere to for every borrower. However, they serve as helpful benchmarks when applying for a mortgage, as following them can enhance your chances of approval.
At
eCash Mortgage, we consider your credit history, finances, and income when reviewing your application. We may approve you for a mortgage with a monthly payment that exceeds the 28% and 36% guidelines.
Why Do Mortgage Lenders Use the 28% and 36% Income Guidelines?
For many homeowners, the 28% and 36% guidelines are practical rules of thumb for determining home affordability. These percentages help ensure that you can manage your mortgage payment along with your other bills and expenses.
Mortgage lenders appreciate these guidelines for the same reason—they help ensure that borrowers secure mortgages they can afford and can comfortably pay each month.
Can You Get a Mortgage When Your Debt Payments Exceed 36% of Your Income?
Yes, it is possible to get approved for a mortgage even if your monthly debt payments exceed 36% of your monthly gross income. These thresholds can vary by loan type:
- FHA Loans: Lenders may approve an FHA loan with total debt payments up to 43% of your monthly gross income.
- Conventional Loans: Lenders may approve a Conventional loan with total debt payments ranging from 43% to 45% of your monthly gross income.
Keep in mind that you will need to meet your lender's credit and financial requirements to qualify for these loans. Additionally, lenders may impose stricter credit and financial requirements if your debt payments surpass the 36% guideline.
Finally, remember that being approved for a mortgage with a higher payment does not mean you should necessarily choose that payment. One benefit of adhering to the 36% income guideline is that it helps maintain affordability, allowing more room in your monthly budget for other expenses.