## Examples Of Mortgage Payment Percentage

Now, lets look at some examples of mortgage payment percentages so you can work out how much you can afford to borrow from a lender and what percentage of income you need for your mortgage.

What value of property can you afford on a $60,000 a year income?

As mentioned above, the rule of thumb is that you can typically afford a mortgage two to 2.5 times your yearly wage. Thats a mortgage between $120,000 and $150,000 at $60,000 per annum. However, youll have to be able to afford the monthly mortgage payments.

What are the payments on a $200,000 mortgage?

Lets imagine a $200,000, 30-year mortgage with a 4% interest rate. This would set you back about $954 per month.

What are the monthly payments on a $300,000 mortgage?

With a 4% fixed interest rate, monthly mortgage payments on a 30-year mortgage would total around $1,432.25 a month. However, if you opt for a 15-year plan, it could cost up to $2,219.06 a month.

## What Percentage Of Your Income Should Your Mortgage Be

Calculating the percentage of income for your mortgage payments will help you understand exactly how much you can afford to spend. Buying real estate via a mortgage is the largest personal investment that most people make in their lifetime.

For this reason, working out how much you can comfortably borrow depends on several factors. Its not just a question of how much the bank is willing to lend you. Factors such as the mortgage percent of your net income , finances, priorities, and preferences are all part of the equation.

As a general rule, most prospective homeowners can finance a property that costs anywhere between two and two-and-a-half times their gross annual income . Now, lets imagine that you earn $100,000 per year. This would mean that you can afford a mortgage between $200,000 and $250,000. However, this calculation is only a general guideline.

Ultimately, when you consider buying a property, there are several essential factors to consider. Primarily, you need to have a good idea of the amount your lender thinks you can afford . Next, it helps to take a personal inventory and think about the type of home where you would like to live. If you plan to live in your new home for many years, what sort of things will you be willing to trade-offor notto afford your dream home?

## Loan Term And Adjustable Vs Fixed Rate Mortgage

Loans with short terms usually have lower interest rates than loans that are paid off over a longer period of time.

An adjustable-rate mortgage might have a lower rate than a fixed-rate mortgage at first. But over time, the rate on an adjustable-rate mortgage could go up by a lot, while the rate on a fixed-rate mortgage would remain the same.

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## How Much House Can I Afford Calculator

Maximum Mortgage Payment

How Much House You Can AffordBased on a interest rate on a -year fixed mortgage.

Now that you know what you can afford, get your mortgage here or try our full mortgage calculator.

As you can see from our calculator, how much house you can afford really depends on the relationship between your *income* and *mortgage*.

To figure out how much mortgage you can afford with your income, different lenders use different guidelinesbut most lenders dish out mortgages that are way too expensive and keep borrowers in debt for decades!

We want to help you buy a home thats a blessing, not a burden. And the only way to do that is to calculate your home-buying budget the smart wayand stick to it!

Thats what our calculator does for you. How does it work? Well show youget ready for some math!

## Youre Our First Priorityevery Time

We believe everyone should be able to make financial decisions with confidence. And while our site doesnt feature every company or financial product available on the market, were proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward and free.

So how do we make money? Our partners compensate us. This may influence which products we review and write about , but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services.Here is a list of our partners.

How much house can I afford?

$583,522

This DTI is in the affordable range. Youll have a comfortable cushion to cover things like food, entertainment and vacations.

*DTI is the main way lenders decide how much you can spend on a mortgage.

This DTI is in the affordable range. Youll have a comfortable cushion to cover things like food, entertainment and vacations.

*DTI is the main way lenders decide how much you can spend on a mortgage.

**Also Check: Bofa Home Loan Navigator **

## What Is The 28/36 Rule Of Thumb For Mortgages

When mortgage lenders are trying to determine how much theyll let you borrow, your debt-to-income ratio is a standard barometer. The 28/36 rule is a common rule of thumb for DTI.

The 28/36 rule simply states that a mortgage borrower/household should not use more than 28% of their gross monthly income toward housing expenses and no more than 36% of gross monthly income for all debt service, including housing, Marc Edelstein, a senior loan officer at Ross Mortgage Corporation in Detroit, told The Balance via email.

It’s important to understand what housing expenses entail because they include more than just the raw number that makes up your monthly mortgage payment. Your housing expenses could include the principal and interest you pay on your mortgage, homeowners insurance, housing association fees, and more.

## How To Calculate Debt

Calculating your debt-to-income ratio isn’t difficult. The first thing you need to do is determine your gross monthly incomeyour income before taxes and other expenses are deducted. If you are married and will be applying for the home loan together, you should add together both your incomes.

Next, take the total and multiply it first by 0.28, and then by 0.36, or 0.43 if you’re angling for a qualified mortgage. For example, if you and your partner have a combined gross monthly income of $7,000, it would be broken down like this:

- $7,000 x 0.28 = $1,960
- $7,000 x 0.36 = $2,520
- $7,000 x 0.43 = $3,010

This means that your mortgage, taxes, and insurance payments shouldnt exceed $1,960 per month, and your total monthly debt paymentsincluding that $1,960should be no more than $2,520.

Unfortunately, the rule says to keep your monthly payments under both of these limits. So the next step is to see what effect your other debts have. Add up your total monthly non-mortgage debt payments, such as credit card, student loan, or car loan payments.

For this example, lets assume your monthly debt payments come to a total of $950. Subtract that amount from $2,520, and youll see that your mortgage payment shouldnt exceed $1,570.

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## Can I Get A Mortgage 5 Times My Salary Uk

Yes. Even though many mortgage lenders cap the amount you can borrow based on a 4 percent rate, this is not true for everyone. Five times your income is not a requirement with the majority of mortgage providers. In those cases, it would be a good idea to use a mortgage broker because searching for the lender is not easy.

## Our Take: Somewhere In Between

Not everybody is as debt-averse as Ramseyand following his one-size-fits-all advice has risks. You just have to remember: The more you spend on your home, the less you have available to save for everything else. You may be able to afford a housing payment that is 35% of your pretax income today, but what about when you have kids, buy a new car, or lose your job?

**Another reader put it this way:**

- Your mortgage payment should be equal to one weeks paycheck.
- Your mortgage payment plus all other debt should be no greater than two weeks paycheck.

Thats on the conservative side, too. One weeks paycheck is about 23% of your monthly income.

**If I had to set a rule, it would be this:**

- Aim to keep your mortgage payment at or below 28% of your pretax monthly income.
- Aim to keep your total debt payments at or below 40% of your pretax monthly income. Note that 40% should be a maximum. We recommend an even better goal is to keep total debt to a third, or 33%.

As some commenters have pointed out, while it may be possible to buy a decent home in a small midwestern town for $100,000 , workers in New York or San Francisco will need to spend five times that amount just to get a hole in the wall. Yes, people tend to earn more in these high-cost-of-living areas, but not that much more. Does it mean they shouldnt buy a home? Not necessarily. Theyll simply have to make trade-offs to buy in those areas.

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## What Percentage Of Your Salary Should Go For A Mortgage

Buying and owning real estate usually involves having a mortgage loan. If you’re contemplating becoming another happy homeowner, you should have an idea what mortgage lenders look for as a percentage of your compensation. Along with acting as a major qualification component, statistics prove that spending this percentage — or less — for your mortgage payment predicts your success at meeting your loan obligations.

## How Much Mortgage Can I Afford

Generally speaking, most prospective homeowners can afford to finance a property whose mortgage isbetween two and two-and-a-half times their annual gross income. Under this formula, a person earning $100,000 per year can only afford a mortgage of $200,000 to $250,000. However, this calculation is only a general guideline.”

Ultimately, when deciding on a property, you need to consider several additional factors. First, it’s a good idea to have some understanding of what your lender thinks you can afford . Second, you need to have some personal introspection and figure out what type of home you are willing to live in if you plan on living in the house for a long time and what other types of consumption you are ready to forgoor notto live in your home.

While real estate has traditionally been considered a safe long-term investment, recessions and other disasters can test that theoryand make would-be homeowners think twice.

**Also Check: Recasting Mortgage Chase **

## The Percentage We Recommend

At Rocket Mortgage®, the percentage of income-to-mortgage ratio we recommend is 28% of your pretax income. This percentage strikes a good balance between buying the home you want and keeping money in your budget for emergencies and other expenses. However, its important to remember that you dont need to spend up to your monthly limit. Think of 28% as the maximum amount you should spend monthly on your total mortgage payment. Remember to include your principal, interest, taxes, insurance and homeowners association dues in your total before you sign on a loan.

## Figure Out 25% Of Your Take

Lets say you earn $5,000 a month . According to the 25% rule we mentioned earlier, that means your monthly house payment should be no more than $1,250.

Stick to that number and youll have plenty of room in your budget to tackle other financial goals like home maintenance and investing for retirement.

**Recommended Reading: Can You Get Preapproved For A Mortgage Without Hurting Your Credit **

## Mortgage Payments Arent Your Only Homeownership Cost

Theres more to homeownership cost than your monthly payment. More on that later. But what makes up your monthly payment itself?

Mortgage professionals use the acronym PITI to cover some of the main ones. That stands for:

**Principal:**The amount by which you reduce the amount you borrowed each month.**Interest:**The cost of borrowing.**Taxes:**The property taxes you have to pay.**Insurance:**Homeowners insurance. Plus, depending on where you buy, possibly flood, earthquake or hurricane cover.

None of these is optional and if you fall far behind on any of them, youll be in breach of your mortgage agreement and subject to action by your lender.

## How To Calculate The Qualifying Ratio For A Home Loan

One of the mistakes first-time home-buyers make is to put financial decisions into their mortgage broker’s or bank’s hands, borrowing as much as the institution will lend them. Take control of your finances and control you debt by determining an ideal percentage of monthly income to devote to your mortgage. Keep in mind that most mortgages do not include additional expenses you may incur with real estate ownership, such as taxes, insurance and maintenance.

**Recommended Reading: How Does Rocket Mortgage Work **

## Example Of Mortgage Payment Percentage

Based on the 28 percent and 36 percent models, heres a budgeting example assuming the borrower has a monthly income of $5,000.

- $5,000 x 0.28 = $1,400
- $5,000 x 0.36 = $1,800

Going by the 28 percent rule, the borrower should be able to reasonably afford a $1,400 mortgage payment. However, factoring in the 36 percent rule, the borrower would also only have room to devote $800 to their remaining debt obligations. Applied to your own financial situation, this may or may not be feasible for you.

## Follow The 28 Percent Rule

Once you know your gross monthly income, you can use this number to determine what percentage of income should go to mortgage. While lenders can approve higher percentages, the law does not allow the approval of mortgages that would take up more than 35 percent of a persons monthly income. Most lenders must follow strict policies that limit a mortgage payment to a lower percentage, that commonly being 28 percent.

Example:

$7,833 x 0.28 = $2,193

Other costs should also factor into this number, such as homeowners insurance and real estate taxes.

**Also Check: Rocket Mortgage Loan Types **

## Dont Forget To Factor In Closing Costs

Alright, dont freak out here. But a down payment isnt the only cash youll need to save up to buy a home. There are also closing costs to consider.

On average, closing costs are about 34% of the purchase price of your home.1 Your lender and real estate agent buddies will let you know exactly how much your closing costs are so you can pay for them on closing day.

These costs cover important parts of the home-buying process, such as:

- Appraisal fees
- Attorneys
- Home insurance

Dont forget to factor your closing costs into your overall home-buying budget. For example, if youre purchasing a $200,000 home, multiply that by 4% and youll get an estimated closing cost of $8,000. Add that amount to your 20% down payment , and the total cash youll need to purchase your home is $48,000.

If you dont have the additional $8,000 for closing costs, youll either need to hold off on your home purchase until youve saved up the extra cash or youll have to shoot a little lower on your home price range.

Whatever you do, dont let the closing costs keep you from making the biggest down payment possible. The bigger the down payment, the less youll owe on your mortgage!

## What Are The Income Requirements For Refinancing A Mortgage

Mortgage refinancing options are reserved for qualified borrowers, just like new mortgages. As an existing homeowner, youll need to prove your steady income, have good credit, and be able to prove at least 20 percent equity in your home.

Just like borrowers must prove creditworthiness to initially qualify for a mortgage loan approval, borrowers have to do the same for mortgage refinancing.

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## Follow The 25 Percent Rule

Theres a straightforward way to make sure you can afford your mortgage while managing your other goals, according to Eve Kaplan, a certified financial planner in New Jersey. Housingincluding maintenanceideally shouldnt consume more than 25 percent of a household budget. This goes for folks who rent, too, Kaplan says.

Mortgage bankers would disagree. They use various calculations to figure out how much you can afford, and the amount is often much higher than financial planners recommend. A common measure that brokers use is the debt-to-income ratio , which, for a qualified mortgage, limits your total debt payments, including your mortgage, student loans, credit cards, and auto loans, to 43 percent.

Lets say you and your spouse make a combined annual income of $90,000, or about $5,600 per month after taxes. Based on your DTI and depending on your other debts, you could be approved for a mortgage of $600,000. That might sound exciting at first, but with a monthly payment of about $3,225, it would eat up more than half your take-home pay.

Following Kaplans 25 percent rule, a more reasonable housing budget would be $1,400 per month. So taking into account homeowners insurance and property taxes, youd be better off sticking to a mortgage of $240,000 or less. If you have enough for a 20 percent down payment, the maximum house you can afford is $300,000.

## What Percentage Of Your Monthly Income Should Go To Mortgage

A general rule of thumb for homebuyers is your home loan should eat up no more than 28% of your pre-tax monthly income.

But some borrowers should set their personal level higher or lower. Below, well help you figure out how much you can afford and well also tell you the affordability rules lenders require for different types of mortgages.

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## Calculate Your Monthly Income

The first thing you need to do is to calculate your monthly income. A mortgage broker will usually look at your gross monthly income, or your income before taxes. If you are self-employed or work on commission, a broker may look at your adjusted gross income based on your tax returns. When calculating your income, a broker will usually review your past two years of W-2s and determine the average earned over these two years.

Example:

2015 $90,0002016 $98,000

Most brokers would compute this as an income of $94,000 per year, or $7,833 a month.