You've been saving for years, checking your credit score religiously, and browsing real estate listings every weekend. But here's the million-dollar question (perhaps literally): How much house can you actually afford?
While online calculators give you quick estimates, understanding the 28/36 rule—the golden standard lenders use—will reveal your true buying power and help you avoid becoming house poor.
What Is the 28/36 Rule?
The 28/36 rule is a time-tested guideline that mortgage lenders use to evaluate whether you can afford a home loan. It consists of two critical percentages:
- 28% Front-End Ratio: Your total monthly housing expenses shouldn't exceed 28% of your gross monthly income
- 36% Back-End Ratio: Your total monthly debt payments shouldn't exceed 36% of your gross monthly income
These aren't arbitrary numbers. They're based on decades of lending data showing when homeowners are most likely to successfully manage their mortgages without financial stress. For more detailed calculations, use our Affordability Calculator to see your personalized numbers.
Breaking Down the 28% Front-End Ratio
The front-end ratio, also called the housing ratio, includes all your monthly housing costs:
What's Included:
- Principal and interest payments
- Property taxes
- Homeowners insurance
- HOA fees (if applicable)
- Private Mortgage Insurance (PMI)
Let's see this in action. If your gross monthly income is $8,000, your maximum housing payment would be $2,240 (28% of $8,000). This total must cover everything listed above, not just your mortgage payment.
Many first-time buyers forget about these additional costs. As we detail in our guide on The Hidden Costs of Buying a Home, property taxes and insurance can add 30-40% to your base mortgage payment.
Understanding the 36% Back-End Ratio
The back-end ratio, or debt-to-income ratio (DTI), encompasses all your monthly debt obligations:
What's Included:
- Everything from the front-end ratio
- Credit card minimum payments
- Auto loans
- Student loans
- Personal loans
- Child support or alimony
- Any other recurring debt payments
Using our $8,000 monthly income example, your total debt payments shouldn't exceed $2,880 (36% of $8,000). If your housing costs are $2,240, you'd only have $640 left for all other debts.
Real-World Examples: Three Buyer Scenarios
Scenario 1: The Ideal Buyer
Sarah earns $75,000 annually ($6,250 monthly gross):
- Maximum housing payment: $1,750 (28%)
- Maximum total debt: $2,250 (36%)
- Current debts: $300 car payment, $150 student loans
- Available for housing: $1,750 (within limit)
- Result: Qualifies for approximately $300,000 home
Scenario 2: The Debt-Heavy Buyer
Marcus earns $90,000 annually ($7,500 monthly gross):
- Maximum housing payment: $2,100 (28%)
- Maximum total debt: $2,700 (36%)
- Current debts: $500 car, $400 student loans, $200 credit cards
- Available for housing: $1,600 (limited by debts)
- Result: Qualifies for approximately $275,000 home despite higher income
Scenario 3: The Stretching Buyer
The Johnson family earns $120,000 annually ($10,000 monthly gross):
- Maximum housing payment: $2,800 (28%)
- Maximum total debt: $3,600 (36%)
- Current debts: $700 in various payments
- Available for housing: $2,800
- Result: Could qualify for $480,000 but should consider staying closer to $400,000 for comfort
When Lenders Bend the Rules
The 28/36 rule isn't set in stone. Different loan programs have varying requirements:
Conventional Loans
Typically stick closest to 28/36, though strong borrowers might get approved up to 43% DTI with compensating factors like excellent credit or large down payments. Learn more about FHA vs Conventional Loans to understand your options.
FHA Loans
More flexible with ratios, often accepting front-end ratios up to 31% and back-end ratios up to 43% (sometimes even 50% with strong compensating factors). First-time buyers should read our comprehensive First-Time Homebuyer's Guide for program details.
VA Loans
Focus primarily on residual income rather than strict ratios, though 41% DTI is a common benchmark. Our upcoming guide on VA Loans for Veterans and Military Families covers these unique benefits.
USDA Loans
Generally allow ratios up to 29/41, designed to help moderate-income buyers in rural areas.
Strategies to Improve Your Ratios
1. Pay Down Existing Debt
Focus on high-payment debts first. Paying off a $400 monthly car payment improves your buying power more than paying off a $50 monthly credit card minimum.
2. Increase Your Income
Consider all qualifying income sources:
- Overtime (if consistent for 2+ years)
- Bonuses (averaged over 2 years)
- Part-time job income (if stable)
- Investment income
- Rental income (typically 75% counted)
3. Lower Your Housing Costs
Strategies to reduce your monthly payment:
- Make a larger down payment
- Buy down your interest rate with points
- Choose a less expensive home
- Look in areas with lower property taxes
- Avoid homes with HOA fees
Our guide on Negotiating Your Mortgage Rate reveals tactics that could save you hundreds monthly.
4. Time Your Purchase Strategically
If you're close to paying off a debt, wait until it's gone. A car loan with 6 months left might be worth paying off early to improve your ratios. Check our analysis on the Best and Worst Months to Buy a Home for timing insights.
The Hidden Danger: Being House Poor
Just because you qualify for a certain amount doesn't mean you should borrow it all. Being "house poor"—spending so much on housing that you can't enjoy life or save for emergencies—is a real risk.
Consider the true cost of homeownership beyond your mortgage:
- Maintenance and repairs (1-3% of home value annually)
- Utilities (often 50% higher than renting)
- Landscaping and lawn care
- Furniture and decorating
- Emergency repairs
Our article on Emergency Fund vs Down Payment helps you balance these competing priorities.
Creating Your Personal Affordability Formula
While the 28/36 rule provides a framework, your personal comfort level matters most. Consider these factors:
Your Financial Goals
- Retirement savings targets
- Children's education funding
- Travel and lifestyle preferences
- Career stability and growth potential
Your Risk Tolerance
Some people sleep better with a smaller mortgage, while others are comfortable maximizing their buying power. There's no right answer—only what's right for you.
Your Local Market
In high-cost areas, lenders might approve higher ratios. In affordable markets, staying well below the limits gives you more financial flexibility. Our upcoming guide on State-by-State First-Time Buyer Deals breaks down regional differences.
Common Mistakes to Avoid
1. Forgetting About Income Changes
If you're planning to start a family, change careers, or retire within your mortgage term, factor in potential income changes.
2. Ignoring Debt You're About to Take On
Planning to buy a new car after closing? That future payment affects your real affordability, even if lenders don't see it yet.
3. Using Gross Instead of Net Income for Personal Budgeting
While lenders use gross income, your take-home pay is what really matters for monthly budgeting. After taxes, insurance, and retirement contributions, your actual available income might be 25-30% less.
4. Not Considering Interest Rate Changes
If you're getting an adjustable-rate mortgage or buying when rates are historically low, consider whether you could afford higher payments in the future. Our analysis of Rising Interest Rates: Should You Buy Now or Wait? helps with this decision.
Beyond the Numbers: Quality of Life Considerations
The 28/36 rule doesn't account for everything that matters in homeownership:
Commute Costs
A cheaper house farther from work might cost more in gas, vehicle wear, and lost time. Calculate the true cost of your commute before choosing location over price.
School Quality
Homes in top school districts cost more but might save on private school tuition. Even without kids, school quality affects resale value.
Future Maintenance
Older homes might fit your budget initially but require significant repairs. Our guide on Home Inspection Red Flags helps identify potential money pits.
Making Your Decision: A Step-by-Step Action Plan
- Calculate Your Current Ratios: Add up all monthly debts and divide by gross monthly income
- Get Pre-Approved: Learn what lenders will actually offer versus theoretical limits. Avoid the Mortgage Pre-Approval Mistakes that could hurt your chances.
- Create a Realistic Budget: Include all costs of homeownership, not just the mortgage
- Shop Within 70-80% of Your Max: Leave room for unexpected expenses and life changes
- Consider Future Plans: Will your income grow? Will you need a bigger home in 5 years?
- Get Multiple Quotes: Different lenders might offer different terms based on their assessment
The Smart Buyer's Approach
The 28/36 rule gives you boundaries, but wisdom lies in understanding your complete financial picture. Just because you can afford a certain payment doesn't mean it's the right choice for your lifestyle and goals.
Start by using our Mortgage Calculator to run different scenarios. Then consider whether you're better off with a Jumbo Mortgage for your dream home or staying within conventional limits for better rates.
Remember, the home you buy today affects your finances for decades. Take time to understand not just what lenders will approve, but what will help you build long-term wealth while enjoying life along the way.
The 28/36 rule has helped millions of Americans achieve sustainable homeownership. By understanding and strategically applying these guidelines, you'll make a confident decision that balances your homeownership dreams with financial security.
Ready to see exactly what you can afford? Our Rent vs Buy Calculator helps you compare your options, while our guide to 2025 Mortgage Rate Predictions helps you time your purchase strategically.