How much house can I afford? The 28/36 rule, explained
"How much house can I afford?" is the single most important question in homebuying — and the answer has two versions. There's the maximum a lender will approve, and there's the maximum you can comfortably live with. This guide explains the math lenders use (the 28/36 rule), why your own budget might disagree, and how to turn both into a real shopping number.
The 28/36 rule: the lender's starting line
Lenders size your loan with two ratios, together called the 28/36 rule:
- Front-end ratio ≈ 28%: your total monthly housing costs — principal, interest, property taxes, homeowner's insurance, HOA fees, and mortgage insurance if any — should be no more than about 28% of your gross monthly income.
- Back-end ratio ≈ 36%: your total monthly debt payments — housing costs plus car loans, student loans, credit-card minimums, and other recurring debts — should be no more than about 36% of gross monthly income.
The back-end ratio is the stricter of the two for most borrowers, because it counts the debts you already carry. That 8-point gap between 28 and 36 is effectively your "debt budget": if your non-housing debts already eat 10% of your income, your housing ceiling shrinks below 28%.
Worked example: $80,000 of household income
Gross monthly income: $80,000 ÷ 12 = $6,667.
- Front-end ceiling: 28% × $6,667 ≈ $1,867/month for all housing costs.
- Back-end ceiling: 36% × $6,667 ≈ $2,400/month for housing plus all other debts.
Now suppose this household pays $450/month in car and student-loan payments. The back-end test says housing can't exceed $2,400 − $450 = $1,950. The front-end test says $1,867. The lower number wins: about $1,867/month for housing — which includes taxes and insurance, not just the loan payment. At that monthly budget, the home price depends on the down payment and loan terms; a bigger down payment stretches the same monthly number further.
What counts as "housing cost" (it's more than the mortgage)
The 28% test uses the full monthly cost of owning, often remembered as PITI + extras:
- Principal and Interest — the loan payment itself
- Taxes — property taxes, usually escrowed monthly
- Insurance — homeowner's insurance (and flood insurance where required)
- Plus: HOA dues, and mortgage insurance (PMI/MIP) if your down payment is under 20%
First-time buyers are often surprised that taxes and insurance can add several hundred dollars a month on top of the loan payment — and they vary wildly by location. Two identical loan payments can mean very different affordability in a high-tax county versus a low-tax one.
Your down payment moves the needle twice
A larger down payment helps affordability in two ways: it shrinks the loan (lower monthly payment) and, on a conventional loan, it can remove private mortgage insurance (PMI) entirely at 20% down. FHA loans carry a separate mortgage insurance premium (MIP) with different cancellation rules, so the 20% milestone applies to conventional PMI — check your loan type. Run the comparison yourself: a $300,000 home with 5% down means a $285,000 loan plus insurance; with 20% down, a $240,000 loan and no insurance. Same house, very different monthly numbers — and very different 28%-test results.
If your savings are still growing, the down payment guide covers where the money can come from, and down payment assistance programs explains the types of help that exist for buyers short on upfront cash.
The lender's number vs. your number
Here's the catch the math doesn't show: the 28/36 rule uses gross (pre-tax) income. 28% of gross can feel like 35–40% of your actual take-home pay — and the rule knows nothing about your childcare costs, your savings goals, or the fact that the furnace is 19 years old.
Use the lender's math as a ceiling, not a target. A practical approach:
- Run your numbers through the home affordability calculator to get the 28/36-based ceiling.
- Subtract your real-world obligations the rule ignores (childcare, aggressive savings goals, variable income).
- Shop 10–15% below the final number. The breathing room is what turns a house into a home instead of a stress source.
When the 28/36 rule bends
The 28/36 figures are a classic guideline, not a universal law. Some loan programs accept higher back-end ratios — particularly for borrowers with strong credit, large reserves, or stable employment (lenders call these compensating factors). Our DTI explainer goes deeper on front-end vs. back-end ratios and how to lower yours.
Higher approved ratios don't change the underlying reality: every extra percent of income committed to housing is a percent that can't go to savings, repairs, or life. Borrow what the math allows; buy what your life can carry.
Frequently asked questions
What is the 28/36 rule?
A long-standing lending guideline: spend no more than about 28% of gross monthly income on housing costs (the front-end ratio) and no more than about 36% on all recurring monthly debt payments including housing (the back-end ratio). Different loan programs allow different ceilings — it's a guideline, not a law.
Does the 28/36 rule use gross or net income?
Gross (pre-tax) monthly income. That makes the rule more generous than it sounds — 28% of gross can feel like 35% or more of take-home pay. Always sanity-check the lender's number against your real monthly budget.
Can I afford a home with a high debt-to-income ratio?
Some loan programs accept back-end ratios well above 36%, especially with compensating factors like strong credit or large cash reserves. But a higher ratio means less room for savings, repairs, and surprises — affordability on paper and affordability in life can differ.
How does my down payment change what I can afford?
A larger down payment shrinks the loan you need, which lowers your monthly payment and can move a home from unaffordable to affordable under the 28% test. It also builds equity from day one and may eliminate private mortgage insurance (PMI) on conventional loans at 20% equity — FHA's mortgage insurance premium (MIP) follows different cancellation rules.