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

What Is the 28/36 Rule?

The 28/36 rule is a guideline lenders use to determine how much mortgage a borrower can afford. It states that:

• 28%: Your monthly housing expenses (mortgage principal + interest, property taxes, homeowners insurance, and HOA fees) should not exceed 28% of your gross monthly income.
• 36%: Your total monthly debt payments (housing + car loans, student loans, credit card minimums, etc.) should not exceed 36% of your gross monthly income.

These are not hard laws — some lenders go higher for borrowers with strong credit or large down payments. But they are a trusted starting point for understanding what you can realistically afford.

How to Calculate Your Numbers

Example: Household gross monthly income of $8,000.

• Max housing payment (28%): $8,000 × 0.28 = $2,240/month
• Max total debt (36%): $8,000 × 0.36 = $2,880/month
• Max other debt allowed: $2,880 - $2,240 = $640/month

If your car payment plus student loans and credit cards totals $800/month, you exceed the 36% limit. You would need to pay down debt, increase income, or look at a smaller mortgage.

What Housing Expenses Are Included?

PITI + HOA:

• Principal: The loan amount you pay back each month
• Interest: The cost of borrowing money
• Taxes: Property taxes (typically 1-2% of home value annually)
• Insurance: Homeowners insurance
• HOA: Homeowners association fees (if applicable)

Utilities, internet, and maintenance are NOT included in the 28% calculation but you should budget for them separately (typically another 1-2% of home value annually for maintenance).

Are Lenders Strict About 36%?

It depends on the loan type:

• Conventional loans (Fannie Mae/Freddie Mac): Typically max 45-50% total DTI with strong credit and large down payment.
• FHA loans: Can go up to 57% DTI with compensating factors (large savings, excellent credit).
• VA loans: No fixed DTI limit, but most lenders prefer under 50%.
• USDA loans: Usually max 41% DTI.

Just because a lender approves you at 50% DTI does not mean you should take it. Higher DTI leaves less room for savings, emergencies, and lifestyle.

How to Improve Your Ratios

• Pay down existing debt: Eliminating a car loan or credit card balance lowers your 36% denominator.
• Increase your down payment: A larger down payment means a smaller mortgage, which lowers your monthly payment.
• Increase your income: A side hustle, raise, or new job increases both your 28% and 36% allowances.
• Look for a less expensive home: A smaller mortgage is the most direct way to lower your ratios.
• Shop for lower interest rates: Even 0.25% lower rate can meaningfully reduce your monthly payment.

The "House Poor" Warning

Even if a lender approves you at 45% DTI, ask yourself: Can you still save for retirement, build an emergency fund, travel, or handle an unexpected repair? Homeownership comes with constant costs — water heaters break, roofs leak, appliances fail.

Many financial experts recommend a more conservative 25/35 rule (25% for housing, 35% total debt) to leave breathing room. The goal is not just qualification — it is long-term financial peace.