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Before you dive into the house hunt, having a good handle on your budget is crucial — specifically, how much you can afford to pay monthly on your mortgage payment. There are several ways to gauge this, but one of the most popular strategies is called the “28/36 rule.” This rule can help you determine how much house you can afford.
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MORE: See our top picks for mortgage lenders accepting low or no down payments.
The 28/36 rule when buying a home
The 28/36 rule is a common guideline for determining what you can spend on a home. The rule says you should spend no more than 28% of your gross monthly income on housing (your monthly mortgage payment) and a maximum of 36% of your income on all your debts total. This would include your mortgage payment, student loan payment, car payment, credit card minimums, and any other debt you pay toward monthly.
Remember that “housing payments” for the 28/36 rule refers to costs that make up your monthly mortgage payment, such as the principal, interest, property taxes, and homeowners insurance. It does not include other housing costs, such as occasional repairs or utility bills.
Mortgage lenders also sometimes use the 28/36 rule to evaluate your ability to make monthly payments when you apply for a mortgage loan. It’s just a general rule of thumb, though, and many lenders allow borrowers to go beyond these thresholds and still qualify for a loan.
28/36 rule example
It’s easiest to understand the 28/36 rule with an example. Let’s say you and your spouse make $120,000 per year — or $10,000 monthly in gross (pre-tax) income.
Under the 28/36 rule, you could allot for:
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$2,800 per month on your monthly mortgage payment (0.28 x $10,000 = $2,800)
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$3,600 per month on your total debt payments (0.36 x $10,000 = $3,600).
Use the home affordability calculator below to determine what home-buying budget you’re working with. By entering your household income, debt payments, and down payment, you can see how much house you can comfortably afford.
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What percentage of your income should go toward a mortgage?
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28/36 rule vs. DTI ratio
The 28/36 rule is another way of breaking down your debt-to-income ratio, or DTI ratio — a reflection of how much of your monthly income your debts take up. To calculate your DTI ratio, divide your gross (pre-tax) monthly debts by your gross monthly income, like in the example above.
The DTI ratio plays a major role in your ability to qualify for a loan, and mortgage lenders typically look at two factors: your front-end ratio and back-end ratio.
The front-end ratio of your DTI ratio is the percentage of your income that your mortgage payment accounts for. Your back-end ratio details your total debt payments in relation to your income. (With the 28/36 rule, the “28” is the front-end DTI ratio, while the “36” is the back-end one.)
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Follow these 8 steps to buy a house with a low income.
Can you buy a home if you exceed the 28/36 rule?
Whether or not you can exceed the 28/36 rule depends on which type of mortgage loan you get and the specific DTI ratio requirements that come with it. For the most part, however, the 28/36 rule is more of a general guideline than a strict requirement for mortgages.
For example, with FHA loans, the maximum ratios for most loans are 31% on the front-end and 43% on the back-end; however, in some cases, these ratios can increase to 40% or even 50%.
Conventional loans allow for DTI ratios up to 45% with a strong credit score, while VA loans — mortgages for eligible military members, veterans, and their families — have a maximum DTI ratio of 41%.
Keep in mind that just because you can qualify for a loan doesn’t mean it’s a good financial move. Before taking on a loan that puts you beyond the 28/36 debt recommendations, analyze your finances and make sure you’ll be able to comfortably manage your monthly payments for the foreseeable future. Failing to make payments could lead to foreclosure.
How to improve your DTI ratio
If you’re not seeing numbers you like when breaking down your debt-to-income ratio, or you’re worried about qualifying for a loan based on the 28/36 rule, there are things you can do to help your case. These include:
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Pay down your debts: The fewer debt payments you have each month, the more expendable cash you have for a mortgage payment.
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Increase your income: A higher income means a lower DTI ratio and a better chance of qualifying for a mortgage. You could increase your income by asking for a raise, taking on more hours, adopting a side gig, offering consulting or freelance work, or getting a second job.
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Delay buying a home: Waiting to buy a home for a bit could help too. This might allow you more time to reduce your debts, get a promotion at work, or make other changes that could help, such as boosting your credit score.
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Adjust your home search: If your current 28/36 numbers aren’t enough to afford a home in your ideal neighborhood, consider exploring creative solutions, such as buying a condo or co-op, looking in more rural communities, or shopping for a smaller home.
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Bring in a co-buyer: If you can bring in another buyer (and their monthly income), it could improve the numbers and sway things in your favor. Just ensure it’s someone you trust financially, especially if both names will be on the loan documents.
Consulting with a loan officer or financial advisor may also be helpful. They can provide personalized guidance based on your specific home-buying goals and finances.
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28/36 rule FAQs
What is the 28/36 rule for home affordability?
The 28/36 rule says that you should spend a maximum of 28% of your gross monthly income on housing (your monthly mortgage payment) and no more than 36% on all your debts.
How much house can I afford with $120,000 in income?
Using the 28/36 rule, you could likely afford a $2,800 monthly mortgage payment and $3,600 in total debts, which includes your mortgage, car, student loans, credit card, and other debt payments.
Is the 28/36 rule before or after taxes?
The 28/36 rule is based on gross income — meaning your income before paying taxes. Under the 28/36 rule, you can typically afford a home with a payment that’s 28% or less than your monthly gross income and total monthly debt payments (including your mortgage) that equal 36% or less of your monthly income.
Is the 28/36 rule the same as the debt-to-income ratio?
The 28/36 rule is another way of stating the DTI ratio, or debt-to-income ratio. The “28” refers to your front-end DTI ratio, which is how much of your monthly income goes toward housing costs (ideally, no more than 28% of your monthly income). The “36” refers to the ideal back-end DTI ratio — or how much of your monthly income your total debts make up, including your mortgage payment, car payment, student loan payment, and other debts. According to the 28/36 rule, no more than 36% of your monthly income should go toward all your debts.
Is the 28% rule still realistic?
The 28% rule is more of a general guideline than a hard rule, though it depends on which mortgage program you use. For example, an FHA mortgage lender may accept your application even with a DTI ratio of up to 50%, which means up to 50% of your income can go toward debts each month.
How does the 28/36 rule affect mortgages?
The 28/36 rule is a general guideline that recommends spending no more than 28% of your monthly income on your mortgage payment and no more than 36% of it on total debt payments. Most mortgage programs allow for debt-to-income ratios higher than this, so you may still be able to qualify for a loan if you exceed the 28/36 recommendations.
Laura Grace Tarpley edited this article.
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