How to Calculate Your Ability to Pay a Mortgage

Knowing if you will be able to afford to make your mortgage payments is important. After Sept. 11, 2001, The Federal Reserve lowered interest rates to stimulate the economy. That led to a housing boom. However, the housing market crashed in 2008 when many people lost their homes after getting into mortgage agreements that they were not able to sustain. It is not hard to determine if you will be able to pay a mortgage.

Calculate what the mortgage payments are likely to be. You can do this by using an online mortgage calculator. It will ask you to enter the price of the home, the loan amount you qualify for, the interest rate, the loan term, the start date, the property tax and the private mortgage insurance.

Understand what kind of mortgage you will have. Know if the payments will increase or stay the same. Mortgages called ARMs (Adjustable Rate Mortgages) mean that payments will change over time. Fixed-rate mortgages do not experience rate changes.

Figure out your mortgage-to-income ratio. While lenders calculate your gross monthly income against what your house payment will be, you should use your net monthly income instead. That will give you a truer picture because that is what you can actually spend. Most lenders say that your payment should not be more than 28 percent of your income. Therefore, if your net income is $3,500 a month, 28 percent of that is $980, meaning that your house payment should not be more than that.

Consider your other debts. Besides your mortgage, you will have other monthly expenses such as credit card payments, car payments, cell phones and groceries. Most lenders like the ratio of debt to income, combined with the mortgage, to be 36 percent. Therefore, if your net income is $3,500 a month, 36 percent of that is $1,260, meaning that if you add your additional expenses to the mortgage, the figure should be less than $1,260.

Consider a less expensive house. If your debts including the mortgage will total more than 36 percent, you should probably look for a house with a smaller mortgage payment.

Think about your overall picture. For example, if you have a good credit score, in the 900s for VantageScore or above 720 for FICO and you are planning to put down a large down payment, you may be able to get and afford a mortgage, even if your debts will be more than 36 percent.


  • Even if you think you think you can handle a high mortgage payment, it is usually a bad idea to have your total debt be more than 50 percent of your income. You want your home to add to the quality of your life, not become a heavy burden.