## How Much Mortgage Should You Take On?
Buying a home is a major financial decision, and one of the most important factors to consider is how much mortgage you can afford. Taking on too much debt can put you at risk of foreclosure, while not taking on enough debt can mean you’re not getting the most out of your investment.
So, how do you know how much mortgage you should take on? Here are a few things to consider:
### Your income and debt
Your income and debt are the two most important factors in determining how much mortgage you can afford. Lenders typically want to see that your monthly housing payment (including principal, interest, taxes, and insurance) is no more than 28% of your gross monthly income. They also want to see that your total debt-to-income ratio (DTI) is no more than 36%.
To calculate your DTI, add up all of your monthly debt payments (including your mortgage payment, car payment, credit card payments, and student loan payments) and divide that number by your gross monthly income.
For example, if your gross monthly income is $5,000 and your monthly debt payments are $1,000, your DTI would be 20%.
### Your down payment
The amount of your down payment will also affect how much mortgage you can afford. A larger down payment will result in a smaller loan amount, which will in turn reduce your monthly payments.
For example, if you’re buying a $200,000 home and you put down $20,000, you’ll have a loan amount of $180,000. If you get a 30-year fixed-rate mortgage with an interest rate of 4%, your monthly payment will be $843.
If you only put down $5,000, however, you’ll have a loan amount of $195,000. This will result in a monthly payment of $932.
### Your other expenses
In addition to your income, debt, and down payment, you also need to consider your other expenses when determining how much mortgage you can afford. These expenses include things like food, transportation, healthcare, and childcare.
To get a better idea of your monthly expenses, track your spending for a few months. Once you know how much you’re spending each month, you can create a budget that will help you determine how much you can afford to spend on housing.
### Your goals
Finally, you need to consider your financial goals when determining how much mortgage you can afford. If you’re planning to retire early or save for a child’s education, you may want to take on a smaller mortgage so that you have more money left over for other expenses.
### How to get pre-approved for a mortgage
Once you have a good understanding of your finances and goals, you can start the process of getting pre-approved for a mortgage. This will give you a better idea of how much you can afford to borrow and will make the home buying process smoother.
To get pre-approved for a mortgage, you’ll need to provide the lender with information about your income, debt, and assets. The lender will then use this information to calculate your DTI and determine how much you can afford to borrow.
Getting pre-approved for a mortgage is a free and easy process. It can also save you time and hassle when you’re ready to start shopping for a home.
### Conclusion
Determining how much mortgage you can afford is an important step in the home buying process. By considering your income, debt, down payment, other expenses, and goals, you can make sure that you take on a mortgage that you can afford and that will help you achieve your financial goals.
## Additional resources
* [How to Get Pre-Approved for a Mortgage](https://www.nerdwallet.com/article/mortgages/pre-approval-mortgage)
* [How to Calculate Your Debt-to-Income Ratio](https://www.thebalance.com/how-to-calculate-your-debt-to-income-ratio-2386142)
* [How to Create a Budget](https://www.consumer.ftc.gov/articles/how-create-budget)