How to Calculate Mortgage Affordability
Mortgage affordability is calculated based on two main factors: your income (which determines the maximum loan size) and the monthly payment (which must be affordable relative to your expenses). Lenders use a debt-to-income ratio — your total monthly debt payments as a percentage of your gross monthly income — to decide how much they'll lend.
The 28/36 Rule (US)
The most common US guideline says housing costs should not exceed 28% of gross monthly income (the front-end ratio), and total debt payments should not exceed 36% (the back-end ratio). Fannie Mae and FHA loans allow up to 43–50% back-end DTI with strong credit scores. On a $6,000/month gross income, the 28% rule suggests a maximum $1,680 monthly housing payment.
UK Mortgage Affordability
UK lenders typically lend 4–4.5 times your annual salary for a single applicant, or combined income for joint applications. They also stress-test at approximately 3% above the standard variable rate to ensure you could still afford repayments if rates rose. The Financial Conduct Authority (FCA) mandates these affordability checks for all regulated mortgages.
Australian Borrowing Power
Australian banks assess affordability based on your income, existing debts, living expenses (using either the Household Expenditure Measure or your actual expenses, whichever is higher) and a 3% serviceability buffer above the loan rate. Banks typically lend 5–6 times gross income for a single applicant, but this varies significantly based on expenses and other debts.
Frequently Asked Questions
How much mortgage can I get on my salary?
A common rule is that you can borrow 4–4.5× your annual salary in the UK, 28–36% of gross monthly income as a payment in the US (the debt-to-income rule), and up to 6× your gross income in Australia (subject to a stress test). Our calculator uses these guidelines to estimate your maximum borrowing power.
What is a debt-to-income ratio for a mortgage?
DTI is your total monthly debt payments divided by your gross monthly income. Most US lenders want a back-end DTI below 43% and a front-end (housing) DTI below 28%. In the UK, lenders stress-test at 3% above the current rate. In Australia, APRA's serviceability buffer requires qualifying at 3% above the loan rate.
How much deposit do I need?
In the US, 20% avoids PMI; FHA loans allow 3.5% down. In the UK, 5–10% is typical for a first buyer. In Australia, 20% avoids LMI; some lenders accept 5% with LMI. In NZ, 20% is standard; first home buyers may access KiwiSaver and HomeStart grants. In Canada, minimum is 5% for homes under $500,000.
What is an affordability stress test?
A stress test checks whether you could still afford the mortgage if interest rates rose. Australia's APRA requires lenders to test at 3% above the loan rate. Canada requires passing at the higher of 5.25% or contract rate + 2%. The UK tests affordability if rates rose by 3 percentage points. This protects buyers from taking on loans they couldn't afford after rate rises.
What is the maximum loan-to-value ratio?
LTV is the loan amount as a percentage of the property value. A $300,000 mortgage on a $400,000 property is 75% LTV. Most lenders cap at 95% LTV (meaning a 5% deposit minimum). Better rates are available at lower LTVs — typically significant improvements at 90%, 80%, 75% and 60% LTV thresholds.