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How much house can I afford? The 28/36 rule explained

Lenders use two simple ratios to decide how big a mortgage you can get. Here's how they work, with worked examples and the costs people forget.

6 min read

Before you fall in love with a house, it helps to know what a lender is likely to approve and, more importantly, what you can comfortably pay every month. Most US lenders start with a simple guideline called the 28/36 rule.

The 28/36 rule

  • 28%: your total monthly housing cost (mortgage principal and interest, property tax, home insurance, PMI and HOA fees) should be no more than 28% of your gross monthly income.
  • 36%: all your monthly debt payments together, housing plus car loans, student loans, credit cards and so on, should be no more than 36% of your gross monthly income.

These percentages are called debt-to-income (DTI) ratios. Gross income means before tax.

A worked example

Say your household earns $96,000 a year, which is $8,000 a month before tax.

  • 28% of $8,000 = $2,240 maximum for total housing costs.
  • 36% of $8,000 = $2,880 maximum for all debts.

If you already pay $400 a month for a car loan, the 36% limit leaves $2,880 − $400 = $2,480 for housing. The lower of the two numbers wins, so your housing budget is $2,240 a month.

Now subtract the costs that aren't the loan itself. With about $400 a month for property tax and $125 for insurance, roughly $1,715 is left for principal and interest. At a 6.5% rate over 30 years, that supports a loan of about $271,000. Add a 20% down payment and you're looking at a home price of around $339,000.

You can try your own numbers in the mortgage calculator: adjust the price until the monthly total lands on your budget.

Costs people forget

  • Closing costs: typically 2–5% of the price, paid when you buy.
  • PMI: if you put down less than 20%, expect roughly 0.3–1.5% of the loan per year until you reach 20% equity.
  • Maintenance: a common rule of thumb is to budget 1% of the home's value every year for repairs.
  • Utilities and HOA fees: often higher in a house than in an apartment.
  • An emergency fund: don't empty your savings for the down payment. Keep three to six months of expenses.

What a lender approves vs. what you can afford

Lenders may approve you for more than the 28/36 rule suggests, sometimes up to a 43–50% total debt ratio. That doesn't mean you should borrow that much. The rule is built around gross income, but you pay the mortgage from take-home pay, after taxes, retirement savings and everyday spending.

A safer test: work out what you can pay each month while still saving for retirement and emergencies, then find the price that fits that payment, not the other way around.

Ways to afford more house

  • Pay down other debts first to free up room under the 36% limit.
  • Improve your credit score; a lower rate raises how much each dollar of payment can borrow.
  • Save a bigger down payment to avoid PMI.
  • Compare rates from several lenders. Even 0.25% makes a real difference over 30 years.

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