The 28/36 rule, in plain English
Lenders and planners often use two quick checks:
- 28%: your housing payment (mortgage, property tax, insurance, PMI and HOA) should be at most 28% of your gross monthly income.
- 36%: all your debt payments together, including the house, should be at most 36%.
Whichever limit you hit first sets your comfortable budget. Many lenders approve up to about 43% (sometimes more), which is the stretch column. Approval tells you what a bank will lend, not what leaves room for vacations, savings and surprises.
Ways to afford more house
- Pay down other debts first. Every $100 a month of car or card payments you eliminate frees up room under the 36% limit. The calculator tells you when your debts are the limit.
- Save a bigger down payment. It lowers the loan and removes PMI once you reach 20%.
- Shop for rate. A quarter-point lower rate can add thousands to your budget.
- Compare total cost by area. Property tax rates vary a lot; a cheaper house in a high-tax town can cost more each month.
Did you know?
Planners often suggest budgeting 1% to 2% of the home's value each year for maintenance, plus closing costs of 2% to 5% when you buy. Keep an emergency fund after closing, too.
Example
With a household income of $100,000, $500 a month in other debts, $60,000 saved for a down payment and a 6.5% rate, a comfortable budget is about $341,000, for a monthly payment near $2,331 including property tax, insurance and PMI. The stretch budget, at the 43% lending limit, is about $439,000.
Frequently asked questions
Is the 28/36 rule based on gross or take-home pay?
Gross pay, meaning before taxes and deductions. That's why the comfortable budget can still feel tight on take-home pay, especially in high-tax states.
What counts as monthly debt?
Minimum payments on credit cards, car loans, student loans, personal loans and child support. Rent, utilities, phone and groceries don't count.
Does this include PMI?
Yes. If your down payment is under 20% of the price, PMI is added at the yearly rate you enter.