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Salary is just one part of the mortgage equation
Many home buyers want to frame their budget in terms of their income.
It’s common to wonder how many times your salary you can borrow for a mortgage.
But mortgage lenders don’t think that way. And that’s because income is only one small part of the mortgage equation.
When all things are considered, like your debt, down payment, and mortgage rate, you might find you could borrow as much as roughly 4 to 4.5 times your salary for a mortgage. Or your budget could be smaller.
The answer is different for everyone.
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3 things that determine how much mortgage you can afford
The amount you can borrow for a mortgage depends on how much a lender thinks you can pay back. And that equation isn’t just based on your salary; there’s a whole host of factors lenders consider.
These are the three main pillars mortgage lenders use when deciding how much to lend you:
- Creditworthiness — Do your credit score and report suggest you’re a responsible borrower who will prioritize mortgage payments?
- Down payment — The more money you put in, the less the lender stands to lose if the loan defaults
- Debt-to-income (DTI) ratio — When applying for a mortgage, your income is always viewed in the context of your debt burden
Each of these factors is roughly as important as the others. And each one will have a big impact on how much mortgage you can afford.
’How much mortgage can I afford on my salary’ calculator
The only way to know for sure how much mortgage you can afford on your salary is by talking to a lender. They’ll look at every piece of your financial picture to calculate the exact amount you can borrow.
But if you’re still in the ‘researching’ phase, you can skip the phone call and get a good estimate of your budget by using a mortgage calculator.
This ‘by income’ mortgage calculator will estimate what you can afford based on your salary, down payment, existing debts.
If you want to better understand how each of those factors affects your max mortgage amount, read on.
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How your income and debt affect your mortgage
Mortgage lenders don’t just want to know your salary. They want to know how much ‘discretionary’ income you have — the amount left over after your fixed expenses are taken care of.
That’s why income for mortgage qualifying is always viewed in the context of your “debt to income ratio” or DTI.
If you have any existing debt — like a car payment, student loans, or a credit card payment — lenders will subtract those costs from your monthy income before calculating how large a mortgage payment you qualify for.
The more debt you have, the less you’ll be approved to borrow for a mortgage.
Conversely, if you keep your debt low, you might be able to borrow as much as around 4 to 4.5 times your salary for a mortgage. Here’s how.
>> Related: Learn how to calculate your debt-to-income ratio
How much you can borrow with no other debt
Take a look at two borrowers, whose profiles are identical except for their debt-to-income ratios.
| Borrower 1 (No Debt) | Borrower 2 (High DTI) | |
| Salary | $100,000 | $100,000 |
| Down Payment | $50,000 | $50,000 |
| Mortgage Rate (30-Year Fixed) | 6.75% | 6.75% |
| Monthly Debts (Pre-Mortgage) | $0 (0% of income) | $1,000 (12% of income) |
| DTI | 36% | 36% |
| Max Home Buying Budget* | $466,000 | $312,000 |
*Home buying budgets estimated using The Mortgage Reports’ mortgage calculator. Your own rate and budget will vary
In this scenario, Borrower One has been admirably prudent and has no ongoing debt.
Borrower Two, on the other hand, has a car payment and personal loan payment totaling $1,000 per month. This drastically affects how much they can borrow for a mortgage.
Note, both loans aim for a 36% DTI, which is typical for a conventional mortgage. However, many popular loan programs allow a maximum DTI of 43% to 45%.
It’s even possible to buy a home with a DTI of close to 50%. But many mainstream lenders won’t approve such loans.
And remember, the higher your DTI, the higher your mortgage rate.
So it’s in your best interest to keep debts low — and even pay some off if possible — when you’re shopping for a mortgage.
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Oops! A problem with having no debt
There’s one problem here. People who never borrow tend to have poor credit scores because they have “thin files.”
If you never or rarely borrow, you haven’t demonstrated that you’re a responsible borrower. This could make mortgage qualifying more difficult.
However, some lenders are willing to consider alternative forms of credit, like rent and utility payments, for those with thin files.
So if you find yourself in this situation, be sure to shop around carefully and look for a lender that can help you.
Mortgage rates affect how much you can borrow for a mortgage
You don’t have to be a math prodigy to work out that the less interest you have to pay on a loan, the more you can afford to borrow.
But let’s look at some examples in action. We’re making all the same assumptions we used in our earlier examples, except for your monthly inescapable expenses ($300) and the interest rates you qualify for.
These figures come straight from a mortgage calculator, and you can run the same numbers to match your own circumstances.
How your mortgage rate changes your budget
In the example above, we’re assuming a mortgage rate of about 6.75%, which, nationwide, is a reasonable expectation for a highly creditworthy borrower at current rates.
But check out how the borrower’s budget changes as mortgage rates rise and fall:
| Salary | $100,000 | $100,000 | $100,000 | $100,000 |
| Down Payment | $50,000 | $50,000 | $50,000 | $50,000 |
| Mortgage Rate (30-Year Fixed) | 6.0% | 6.5% | 7.0% | 7.5% |
| Estimated Home Buying Budget* | $500,000 | $477,000 | $456,000 | $436,000 |
| Monthly Principal and Interest Payment | $2,700 | $2,700 | $2,700 | $2,700 |
*Home buying budgets estimated using The Mortgage Reports’ mortgage calculator. Calculation assumes the borrower has $300 in existing monthly debts
Assuming relatively low debts — $300 per month — and a 6.0% mortgage rate, this person might be able to borrow around $450,000 for a mortgage ($500K budget minus the $50K down payment).
That’s about five times their salary at that rate.
But suppose the borrower has credit issues, and only qualifies with a higher mortgage rate of 7.5%.
Suddenly, the maximum amount they can borrow drops to roughly $386,000, or about 3.9 times their salary. The higher rate has reduced their home buying budget by tens of thousands of dollars.
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Your down payment affects how much you can borrow for a mortgage
Your down payment makes a big difference to the value of the home you can afford.
We’re going back to the assumptions we used in our first example, and changing only the monthly inescapable expenses ($300 rather than $0) and the size of the down payment.
The salary ($100,000) and mortgage rate (about 6.75%) remain the same.
How a large down payment changes your budget
Let’s assume you can make a $160,000 down payment — maybe by using equity you’ve built up over many years in previous homes, or maybe because you’ve had a windfall of cash.
With such a hefty down payment, how many times your salary can you borrow for a mortgage?
- Value of the home you can afford — $576,000
- Monthly payment (for mortgage principal and interest) — $2,700
Again, your total monthly housing costs haven’t changed. But the value of the home you can afford is nudging $600K because you’re making a big down payment.
How a smaller down payment changes your budget
Here’s how the same example looks with a more typical down payment of $20,000 (about 4.5% down in this case).
- Value of the home you can afford — $436,000
- Monthly payment (for mortgage principal and interest) — $2,700
Once again the monthly payments stay the same. But with a much smaller down payment, the home buying budget shrinks by about $140,000. (That said, $436K is a very respectable home buying budget.)
Your mortgage application doesn’t have to be perfect
Sure, you’ll have the biggest home buying budget if you have no other debts and a large salary.
But those things aren’t required. As a home buyer, it’s all about starting where you are now.
Figure out what makes sense for you based on your own salary and needs, rather than aiming for a budget based on a rule of thumb.
Many people find that when they approach it this way, home buying is more attainable than they ever thought possible.
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The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
By refinancing an existing loan, the total finance charges incurred may be higher over the life of the loan.
