|Lenders use two standard (but somewhat flexible) guidelines to determine how much of a monthly mortgage payment you can afford. The first guideline is that your household should spend no more than 28 percent of its gross monthly income (before taxes) on monthly housing expenses, including: mortgage principal and interest, hazard insurance, real estate taxes and private mortgage insurance, if applicable. However, some lenders will stretch that figure to 33 percent.
The second guideline is that your monthly household expenses (as outlined above) plus other debt should not exceed 36 percent of your gross monthly income, although some lenders will stretch this to 38 to 40 percent.
How can I estimate how much of a monthly mortgage payment I can afford?
First, calculate your monthly household income, including that of your co-borrower, if you have one. In addition to regular wages, don’t forget to include overtime, bonuses, commissions, dividends/interest, alimony/child support and any other income.
A. Your Maximum Allowable Housing Expense
After you total your gross monthly income, multiply it by 28 percent to get your maximum allowable housing expense.