How Much House Can You Afford? The 28/36 Rule Explained

When you apply for a mortgage, lenders don't just look at your income — they look at your debt-to-income (DTI) ratio. The gold standard for mortgage lending is the 28/36 rule, a guideline that's been used for decades to determine how much house you can reasonably afford.

What Is the 28/36 Rule?

The rule has two parts:

The Front-End Ratio (28%)

Your total housing payment — principal, interest, property taxes, and homeowners insurance (PITI), plus HOA and PMI if applicable — should not exceed 28% of your gross monthly income.

The Back-End Ratio (36%)

Your total monthly debt payments — housing plus credit cards, student loans, auto loans, child support, and any other recurring debt — should not exceed 36% of your gross monthly income.

How to Calculate It

Step 1: Find Your Gross Monthly Income

If you earn a $95,000 salary:

• $95,000 ÷ 12 = $7,917/month gross

Step 2: Apply the Front-End Ratio (28%)

• $7,917 × 0.28 = $2,217/month maximum housing payment

This $2,217 needs to cover principal + interest + property taxes + insurance + PMI + HOA. That's a lot of pieces.

Step 3: Apply the Back-End Ratio (36%)

Suppose you have:

• Car payment: $400

• Student loan: $300

• Credit card minimums: $100

• Total existing debt: $800/month

• $7,917 × 0.36 = $2,850 (max total debt)

• $2,850 − $800 (existing debt) = $2,050/month max housing payment

In this case, your back-end ratio limits you to $2,050 — lower than the front-end's $2,217. The lower of the two numbers is your actual cap.

Step 4: Translate to Home Price

A $2,050/month payment at 6.5% interest on a 30-year loan, with $200/month for taxes and $100/month for insurance, supports:

• Principal + interest budget: $2,050 − $300 = $1,750
• At 6.5% / 30 years, $1,750/month supports roughly $277,000 in loan principal
• With 10% down, that's a $308,000 home price

Why the Rule Exists

Lenders adopted the 28/36 rule because loans that stay within these ratios have historically low default rates. The 28% cap ensures your housing payment stays manageable even if other expenses rise. The 36% cap ensures you're not so over-leveraged that a job loss or medical bill triggers default.

When You Can Stretch (and When You Shouldn't)

Conventional Loans: 28/36 is the norm

Fannie Mae and Freddie Mac typically allow up to 45% back-end DTI with strong credit and reserves, but the 28/36 rule is the "qualified mortgage" safe harbor.

FHA Loans: More lenient

FHA allows up to 31% front-end and 43% back-end (sometimes higher with manual underwriting). The trade-off: you pay mortgage insurance for the life of the loan.

VA Loans: No front-end limit

VA looks only at the back-end ratio (typically 41%) and residual income. This is one reason VA loans are so powerful for eligible veterans.

The "Affordability" vs "Approval" Gap

Just because a lender approves you for a $400,000 loan doesn't mean you can comfortably afford a $400,000 home. Lenders don't know about:

• Childcare costs ($1,000–$2,500/month)
• Healthcare premiums and out-of-pocket
• Retirement contributions (15% of gross is the target)
• Emergency fund contributions
• Lifestyle and travel

A safer approach: calculate your own affordability first, then see if the lender agrees.

The Conservative Rule: 25% of Take-Home

Many financial planners recommend capping your housing payment at 25% of take-home pay (after taxes), not gross. This accounts for taxes and retirement contributions the lender ignores.

On a $95,000 salary with $6,000/month take-home:

• $6,000 × 0.25 = $1,500/month housing budget

That's well below the lender's $2,050 — but it leaves room for the rest of your life.

Other Costs to Budget For

Closing Costs: 2%–5% of loan amount

On a $300,000 loan, that's $6,000–$15,000 due at closing, separate from your down payment.

Moving and Setup: $2,000–$10,000

Movers, paint, furniture, immediate repairs.

Maintenance: 1%–2% of home value annually

A $300,000 home needs $3,000–$6,000/year set aside for repairs and maintenance. New HVAC, roof, water heater — they all eventually need replacement.

Property Tax Increases

Many areas reassess property value after a sale. Your escrow estimate may be based on the previous owner's assessed value, not yours.

Use the Calculator

Our Affordability Calculator handles all the math for you:

• Enter your income, debts, down payment, and rate
• It calculates both 28% and 36% ratios
• Shows the maximum home price that fits each rule
• Recommends a conservative budget you can actually live with

Next Steps

1. Pull your credit report and check for errors (free at annualcreditreport.com)
2. List all monthly debt payments to calculate your current DTI
3. Save for a down payment plus closing costs and an emergency fund
4. Use the Affordability Calculator to set your target price range
5. Get pre-approved before house shopping — sellers won't take offers without it

The 28/36 rule isn't a limit on your dreams — it's a guardrail that keeps your home a blessing instead of a burden. Run the numbers honestly, and you'll sleep better for the next 30 years.