Start with your monthly take-home pay and debt

The simplest way to know whether you can afford a mortgage is to look at what lenders actually check: your monthly income after taxes and your existing debt payments. Most lenders will not give you a mortgage if your new mortgage payment plus all other debt payments (car loans, student loans, credit cards, child support) exceed 43% of your gross monthly income — the income before taxes.

Some lenders will go as high as 50% if you have a strong credit score and savings, but 43% is the standard threshold. To do this math yourself, multiply your gross monthly income by 0.43. That number is the maximum total debt payment a lender will typically allow. Subtract what you already pay each month on other debts. What remains is roughly what you can afford to borrow for a mortgage payment.

This is a ceiling, not a recommendation. It tells you what a lender might approve, not what leaves you room to live.

Key Takeaways

  • Lenders typically cap your total monthly debt payments at 43% of your gross income, which includes your new mortgage payment.
  • You need to know your exact monthly debt obligations — car payments, student loans, credit cards, anything with a fixed payment — before you can calculate your mortgage budget.
  • The mortgage payment itself includes principal, interest, property taxes, homeowners insurance, and often mortgage insurance, so the monthly cost is higher than just the loan payment.
  • A down payment of at least 3% to 5% is standard, though some programs accept less, and a larger down payment lowers your monthly payment and removes mortgage insurance.
  • Your credit score, savings, and debt history all affect whether a lender will approve you and what interest rate they offer.

What counts as your monthly debt payments

When lenders calculate whether you can afford a mortgage, they count every monthly payment you owe. This includes car loans, student loan payments, credit card minimums, personal loans, alimony, and child support. They do not count utilities, rent, groceries, or insurance — only debts with a fixed monthly payment.

If you have a credit card with a $5,000 balance and a minimum payment of $150, lenders count that $150. If you have a car loan with 24 months left at $400 per month, they count the full $400. If you have student loans in deferment with no current payment, they typically count zero, though some lenders estimate a payment based on your balance.

Pull your credit report from annualcreditreport.com (the only free source authorized by federal law) and list every account with a payment. This is the number you subtract from your 43% threshold.

How much house price that actually means

Once you know what monthly mortgage payment you can afford, you need to convert that to a house price. The monthly payment depends on three things: the loan amount, the interest rate, and the length of the loan (usually 30 years). Interest rates change daily and depend on your credit score, so you cannot know the exact payment without a rate quote from a lender.

As a rough estimate, a $300,000 loan at 7% interest over 30 years costs about $1,995 per month in principal and interest alone. But your actual monthly payment will be higher because it also includes property taxes, homeowners insurance, and possibly mortgage insurance (if your down payment is less than 20%). Property taxes vary wildly by location — from under 0.5% of the home value per year in some states to over 2% in others. Insurance typically runs $100 to $200 per month depending on the home value and location.

A mortgage calculator on Bankrate, NerdWallet, or your lender's website will show you the full monthly payment including taxes and insurance once you enter your location, down payment amount, and interest rate estimate.

The down payment you need to have saved

Most conventional loans require a down payment of at least 5% to 20% of the home price. Some programs, like FHA loans backed by the Federal Housing Administration, accept down payments as low as 3.5%. VA loans for military members and USDA loans for rural properties sometimes require zero down.

The larger your down payment, the lower your monthly payment and the more likely a lender will approve you. A down payment of less than 20% triggers private mortgage insurance (PMI), which is an extra monthly fee (usually 0.5% to 1% of the loan amount per year) that protects the lender if you default. PMI disappears once you have paid down the loan to 80% of the home's value, but it adds hundreds of dollars per month to your payment in the meantime.

If you have saved $40,000 and are looking at homes in a $400,000 range, that is a 10% down payment. You would owe PMI. If you wait and save $80,000, that is 20% down and no PMI — a significant monthly savings.

Your credit score and interest rate

Your credit score determines whether a lender will approve you and what interest rate they offer. Scores range from 300 to 850. Most lenders require a score of at least 620 for a conventional loan, though 740 or higher gets you the best rates. The difference between a 680 score and a 760 score can be 0.5% to 1% in interest rate — which translates to tens of thousands of dollars over 30 years.

You can check your score free through your bank, credit card company, or sites like Credit Karma and Experian. If your score is below 620, you may still may have access to for an FHA loan, which allows scores as low as 580 in some cases. If your score is between 620 and 680, paying down credit card balances before you apply can raise your score by 20 to 50 points in a few months, which may lower your interest rate.

Interest rates also depend on the loan type, the down payment size, the loan length, and current market conditions. You cannot control market rates, but you can control your down payment and credit score.

What happens if the math says no

If the 43% calculation shows you cannot afford the house you want, you have a few paths. The first is to increase your down payment, which lowers your monthly payment and removes PMI. The second is to wait and pay down existing debt — every dollar you pay toward a car loan or credit card reduces the debt payment that counts against your 43% threshold. The third is to look at less expensive homes in your area.

A fourth option is to improve your credit score before you apply, which can lower your interest rate by 0.5% or more. A fifth is to add a co-borrower with income and low debt, which increases the total income the lender considers. If you are married or in a partnership, both incomes count. If you are single, a parent or other family member can co-sign, though they become legally responsible if you do not pay.

Some people also consider an adjustable-rate mortgage (ARM), which starts at a lower rate than a fixed-rate loan but increases after a set period. This lowers your payment in the first few years but raises it later, so it only makes sense if you plan to sell or refinance before the rate adjusts.

Getting a pre-approval letter from a lender

Once you have done the math yourself, the next step is to contact a mortgage lender — a bank, credit union, or mortgage broker — and ask for a pre-approval. This is not a final approval, but it tells you what loan amount a lender will actually offer based on your income, credit, and debts. Pre-approval requires you to provide recent pay stubs, tax returns, bank statements, and permission for the lender to pull your credit report.

The lender will give you a pre-approval letter stating the maximum loan amount, the estimated interest rate, and the estimated monthly payment. This letter is what you show to a real estate agent or seller to prove you are a serious buyer. Pre-approval is free and does not obligate you to borrow.

Shop with at least two or three lenders, because interest rates and fees vary. A difference of 0.25% in interest rate can save or cost you tens of thousands of dollars over the life of the loan.

Frequently Asked Questions

What if I have student loans in deferment or forbearance?

Lenders treat deferred student loans differently. Some count zero payment, others estimate a payment based on your balance (usually 0.5% to 1% of the total per month). Ask the lender upfront how they handle your specific loans. If the estimate is high, paying down the balance before you apply can lower the estimated payment.

Can I afford a mortgage if I am self-employed?

Yes, but lenders require more documentation. You will need two years of tax returns and possibly profit-and-loss statements to prove your income is stable. Some lenders average your income over two years, which can lower your approved amount if your business is growing. Others use your most recent year. Shop with lenders who specialize in self-employed borrowers.

Does my rent payment count toward the 43% debt limit?

No. Lenders do not count your current rent because it will disappear once you buy. They only count debts that will continue after you close on the home.

What if I have no credit history or a very low score?

FHA loans allow scores as low as 580 and require only a 3.5% down payment. If your score is below 580, focus on paying down existing debt and making all payments on time for at least six months before you apply. Each on-time payment raises your score. You can also become an authorized user on someone else's credit card with a long history and low balance, which may boost your score.

How much should I actually spend if I can afford more?

The 43% threshold is what lenders will approve, not what leaves you comfortable. Many financial advisors recommend keeping your total housing payment (mortgage, taxes, insurance, HOA fees) to no more than 28% of gross income, which is lower than the lender's limit. This leaves more room for emergencies, savings, and other expenses. Calculate both numbers and decide what feels sustainable for your situation.