The first question many homebuyers have when deciding to buy a new home is: how large of a mortgage can I afford?

The answer to this question will impact the type of home, location, and, of course, the price of a home you may purchase.

The answer begins with gross monthly income

incomeA buyer’s gross income is the income made each month before taxes and deductions such as social security are made. Gross income also includes income from:

  • Tips
  •  Alimony
  • Pensions

However, income from Social Security benefits and from the sale of a home, motor vehicles, inheritances, lawsuits, and other one-time sources is not included in gross income.

The maximum size of a buyer’s mortgage is determined by a buyer’s gross income, current financial obligations, credit history, down payment, and the value of the home to be purchased.

So, what percentage of a buyer’s gross income should be dedicated to a mortgage? 

Generally, industry experts recommend that buyers budget up to 28 percent of their income for their new mortgage only and up to 36 percent for mortgage, insurance and other home expenses. 

Every buyer is unique

While the 28 percent rule is one of the most prevalent mortgage guidelines, avoiding reflexively choosing that number and rigidly adhering to it is important.

No single “correct” or “best” percentage can apply to all buyers. Some buyers can easily handle a higher percentage, while others would be wise to choose a lower percentage.

For example, buyers anticipating securing a lower mortgage rate by refinancing in the near future may be able to manage a slightly higher percentage in the interim. Others, such as couples with one spouse working part-time while caring for young children but anticipate returning to full-time work when the children are in school, may also choose a higher percentage.

On the other hand, risk-averse buyers who are uncomfortable stretching their budgets may want to dedicate a lower or significantly lower percentage of their income to a mortgage. Also, buyers anticipating retirement in coming years or planning to reduce their workload – and expected income – may also choose to commit a lower percentage of their income to their new mortgage.

Also, the term of the mortgage – 15 years or 30 – will impact the size of the mortgage and the percentage of gross income devoted to it. Some buyers may be able to pay a higher percentage of their income to pay off their mortgage in 15 years.

The 28 percent rule is an excellent rule of thumb, to be sure. But every buyer is unique, and with so much flexibility in mortgages, there is no “best” percentage. And that’s good news for buyers.

Your loan officer is your best ally

If you are considering the purchase of a new home, starting the process by working with an experienced loan officer is a smart move.

The loan officers of SmartMortgage will work closely with you, assessing your situation, your short- and long-term objectives, the type of home and location that fits you, and land the loan that is best suited to meet your needs.

Our loan officers are experts and have significant experience working with home buyers in all situations. Most importantly, they are extremely skilled in listening to buyers and dedicating the time and effort to ensure they secure the mortgage that best suits them as individuals.

SmartMortgage loan officers work with buyers through every step of the home-buying process, from assessing their financial situation and goals, through mortgage prequalification, preapproval and the actual purchase of their new home.

They’re also experts at making the entire process smooth and enjoyable for every home buyer. They believe buying a home should be a great experience!

Consult with a loan officer at

Are you beginning the steps to purchasing a home? by Guild Mortgage has experienced agents ready to help you start your journey to homeownership.

We will help you review your finances and consult with you about what to expect and how much you can reasonably afford.

Find the right mortgage for you

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The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.