How Much House Can You Afford? The 28/36 Rule
Before looking at listings, it helps to know the price range that fits your income. The 28/36 rule is the most widely used starting point, and it only takes a few minutes to apply.
What the 28/36 rule says
- 28%: your total monthly housing cost should be no more than 28% of your gross monthly income.
- 36%: your total monthly debt payments, housing included, should be no more than 36% of your gross monthly income.
Gross income is your pay before taxes and deductions.
Housing cost means PITI: principal, interest, property taxes and homeowners insurance, plus PMI and HOA dues if they apply.
Total debt adds car loans, student loans, minimum credit card payments and any other loan payments.
A worked example
A household earning $90,000 a year has a gross monthly income of $7,500.
| Limit | Calculation | Maximum |
|---|---|---|
| Housing (28%) | $7,500 × 0.28 | $2,100 a month |
| All debts (36%) | $7,500 × 0.36 | $2,700 a month |
If the household already pays $450 for a car and $250 for student loans, that leaves $2,700 − $700 = $2,000 for housing. The lower of the two figures applies, so the housing budget is $2,000, not $2,100.
From monthly budget to home price
Suppose $550 of that $2,000 goes to property taxes and insurance. That leaves $1,450 for principal and interest. On a 30-year fixed mortgage:
| Interest rate | Loan supported by $1,450 a month |
|---|---|
| 5.5% | about $255,000 |
| 6.5% | about $229,000 |
| 7.5% | about $207,000 |
Add your down payment to get the price range. With $40,000 down at 6.5%, that is a home of roughly $270,000. Note how a one-point change in the rate moves buying power by more than $20,000.
What lenders actually allow
The 28/36 rule is a guideline, not a legal limit. Many loan programs approve higher debt-to-income ratios, especially for borrowers with strong credit or larger down payments. Being approved for a payment does not mean it is comfortable: lenders do not see your childcare, healthcare or retirement savings goals.
Costs the rule leaves out
- Closing costs, commonly 2% to 5% of the loan amount.
- Maintenance and repairs. A frequent rule of thumb is 1% of the home’s value per year.
- Utilities, which are often higher than in a rental.
- Moving and furnishing.
- An emergency fund that should remain intact after closing.
How to improve what you can afford
- Pay down existing debt to free up room under the 36% limit.
- Raise your credit score to qualify for a lower rate.
- Save a larger down payment. At 20% down you avoid PMI on a conventional loan.
- Compare lenders. Rates and fees vary more than most buyers expect.
A more conservative approach
Because the rule uses gross income, the same percentages feel very different depending on your taxes and other commitments. Some buyers prefer to cap housing at 25% of take-home pay, which builds in a larger cushion.
Results are estimates for informational purposes only and are not financial, tax, legal or medical advice.