How Much House Can I Afford? The 28/36 Rule, Worked Out
A common rule of thumb says you can afford a home whose total monthly housing cost is no more than 28% of your gross monthly income, as long as all your debts together, including that housing cost, stay under 36%. On a $90,000 salary with a $400 car payment, a $40,000 down payment and a 6.5% rate, that works out to a home of roughly $290,000 once property tax, insurance and mortgage insurance are counted.
That number is far lower than many online estimates, because many of them only count principal and interest. Here is how the math works and how to adjust it to your situation.
How much house can I afford?
| Maximum monthly housing payment | — |
| Limited by | — |
| Loan amount | — |
| Principal & interest | — |
| Property tax | — |
| Insurance + HOA | — |
| PMI | — |
A guideline, not a loan approval. Lenders also look at credit, savings, job history and the loan program.
The two ratios lenders look at
Front-end ratio (housing ratio). Your expected monthly housing payment divided by your gross monthly income. The housing payment includes principal, interest, property tax, homeowners insurance, mortgage insurance and HOA dues. Principal, interest, taxes and insurance together are often abbreviated PITI.
Back-end ratio (debt-to-income, DTI). All monthly debt payments, including the new housing payment plus car loans, student loans, credit card minimums and personal loans, divided by gross monthly income.
The traditional benchmark is 28% and 36%. These are guidelines, not laws. Lenders and loan programs use different limits: Freddie Mac’s consumer guidance, for example, suggests keeping housing costs under about 30% and total debt under about 45%. Approval limits can be higher still: Fannie Mae’s automated underwriting, for example, accepts a total debt ratio up to 50% for some borrowers. Being approved for a payment does not mean the payment is comfortable.
Worked example
| Input | Value |
|---|---|
| Gross income | $90,000 a year ($7,500 a month) |
| Other debts | $400 a month |
| Down payment | $40,000 |
| Rate and term | 6.5%, 30-year fixed |
| Property tax | 1.1% of value a year |
| Insurance | $1,800 a year |
| PMI | 0.5% of the loan a year (less than 20% down) |
Step 1: find the payment caps.
- Front-end: 28% × $7,500 = $2,100
- Back-end: 36% × $7,500 = $2,700, minus $400 of other debt = $2,300
The lower number wins, so the maximum housing payment is $2,100.
Step 2: find the price whose full payment equals $2,100. At about $290,000:
| Monthly cost | Amount |
|---|---|
| Principal and interest on a $250,000 loan | about $1,580 |
| Property tax | about $266 |
| Insurance | $150 |
| PMI | about $104 |
| Total | about $2,100 |
If you had looked only at principal and interest, $2,100 a month would seem to support a loan of more than $330,000. Taxes, insurance and PMI cut about $80,000 off the realistic price.
What moves the number the most
- Interest rate. Each percentage point changes the payment substantially. Try the calculator at 5.5% and 7.5% to see the range.
- Property tax. Effective rates vary several-fold between states. A 2% rate instead of 1.1% can cost tens of thousands in buying power.
- Other debts. If your back-end ratio is the binding one, paying off a car loan raises your budget more than a raise of the same amount.
- Down payment. Reaching 20% removes PMI on a conventional loan, and every dollar down reduces the loan directly. FHA loans charge mortgage insurance at any down payment, while VA loans have none but usually charge an upfront funding fee.
- HOA dues. A $300 monthly HOA fee counts as part of your housing payment. In the worked example above it would cut the price range by close to $40,000.
Leave room for costs lenders don’t count
The 28/36 rule ignores several real costs of owning:
- Maintenance and repairs. Many planners set aside 1% or more of the home’s value per year. Older homes usually need more.
- Utilities. A house often costs more to heat, cool and power than an apartment.
- Closing costs and moving. These come out of the same savings as your down payment.
- An emergency fund. Owning means no landlord to call when the water heater fails.
If buying at the top of your range would leave you with no savings after closing, aim lower.
A quick checklist before you shop
- Calculate your current back-end ratio. If it’s above 36% before a mortgage, focus on debt first.
- Get your property tax rate and an insurance quote for the area where you plan to buy, not a national average.
- Run the calculator with a rate 1 point higher than today’s quote, in case rates move before you lock.
- Decide your own comfortable payment, then compare it with the calculator. Use the lower of the two.
- Get pre-approved. A lender’s pre-approval reflects your credit and documents, which no calculator can.
The bottom line
The 28/36 rule is a starting point, not a verdict. Run your own numbers with real tax and insurance figures for the area, then pick a price that still leaves you with savings after closing. If the lender approves you for more, treat that as a ceiling, not a target.
Sources
- Freddie Mac, How Much Home Can I Afford?
- Consumer Financial Protection Bureau, When can I remove private mortgage insurance (PMI)?
- Fannie Mae Selling Guide, B3-6-02, Debt-to-Income Ratios
This guide is for general information only and is not financial, tax or legal advice. Rules and rates change; confirm details with your county assessor, lender or a licensed professional. See our methodology and editorial policy for how we research and update content, or report an error.