The One Number You Need to Know Before Signing a Mortgage

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.


  • Taking on too expensive a mortgage could wreck your finances.
  • Knowing one key number could prevent that from happening.
  • Make sure you keep your monthly housing costs to less than 30% of your take-home pay.

It's a vital piece of data to have as you begin house hunting.

These days, home buyers are increasingly being forced to stretch their budgets due to elevated home prices and sky-high mortgage rates. And that means a lot of people risk getting in over their heads and taking on mortgages they can't really afford.

On a basic level, taking on too much house could mean having to deal with ongoing financial stress. But it could also mean falling behind on other bills. And if things get really bad and you wind up in a situation where you can't keep up with your mortgage payments, you could put yourself at risk of losing your home to foreclosure.

That's why it's so important to know what mortgage payments you can reasonably swing. And there's a simple formula that will help you arrive at that answer.

Stick to 30% of your take-home pay

As a general rule, your monthly housing costs should not exceed 30% of your take-home pay. So once you know what that number looks like, you can determine how much of a mortgage you can afford to take on.

So, let's say that after retirement plan contributions, taxes, and other deductions, your monthly paycheck amounts to $4,000. That means you can afford to spend up to $1,200 a month on housing.

That doesn't mean you can take on a $1,200 monthly mortgage payment, though. That 30% limit needs to include all of your predictable recurring monthly housing expenses, including property taxes and homeowners insurance. If you're buying property that's part of a homeowners association, your monthly HOA fees will need to be included in that $1,200 limit as well.

So, let's say you're not sure how much of a mortgage payment you can swing, but you know you need to cap your housing costs to $1,200 a month. If you see a home listed in your area you're interested in buying and its annual property tax bill is $2,400, that means you'll need to allocate $200 a month to taxes.

Meanwhile, let's say you get quoted $1,200 a year for homeowners insurance when you call around for estimates. That means you're looking at another $100 a month for that. If you're not buying a home in an HOA, you're left with $900 a month to spend on a mortgage. So if you're able to keep your payments to that amount or less, you should be in pretty good shape.

Don't go overboard

Buying a home that's beyond your budget is a move you might sorely regret. Rather than take that risk, crunch your numbers and stick to a mortgage that keeps your hosting costs to 30% of your pay or less.

Now, there may be some rare cases where it's okay to exceed that 30% mark a bit -- such as, if your remaining bills are really low or you're buying a home in a walkable city and therefore won't need a car at all. But otherwise, sticking to that 30% limit could really spare you a world of financial stress.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

Our Research Expert

Related Articles

View All Articles Learn More Link Arrow