To get a quick idea of what you can afford to spend, multiply your annual gross income (before taxes) by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home. This estimate is rough—the actual number will vary based on factors such as your debt and credit history.

Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.

Housing Expense Ratio

Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you’re looking to buy.

Debt-to-Income Ratio

You need to factor your other debts into determining an affordable monthly mortgage payment—for a rough estimate, use our mortgage calculator. Mortgage lenders look at whether your total debt is higher than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.

A mortgage lender, a housing counselor, or consumer credit counselor can help you better understand these guidelines. Before you talk to a financial professional, you can organize your financial picture by creating a budget. Don’t forget that you also have to save for the down payment, closing costs, inspections costs, moving, and other related expenses.

About Stapleton

Stapleton Realty is a full-service real estate firm dedicated to providing the highest quality customer service in the real estate market. Our mission is to provide our clients with a stress-free and inviting atmosphere during their home buying or selling experience. We continuously uphold our core values of exceptional service, teamwork and strong work ethic all while striving to be the industry standard in service and customer care.