The standard guideline: 28 percent of gross income
Most lenders use a straightforward rule: your monthly house payment should not exceed 28 percent of your gross monthly income. Gross income means what you earn before taxes and other deductions come out of your paycheck.
This is called the front-end ratio or housing ratio. If you earn $4,000 per month gross, the guideline suggests your house payment should stay at or below $1,120. This payment includes your mortgage principal and interest, property taxes, homeowners insurance, and mortgage insurance if you put down less than 20 percent.
The 28 percent figure is not a law — it is a standard that most banks and mortgage lenders follow when deciding how much to lend you. Some lenders will go higher, some lower, depending on your credit score, job history, and how much cash you have saved.
Key Takeaways
- The 28 percent rule means your house payment should not exceed 28 percent of your gross monthly income, which is what you earn before taxes.
- Your house payment includes the mortgage itself plus property taxes, homeowners insurance, and mortgage insurance — not just the loan amount.
- A second ratio called the debt-to-income ratio looks at all your debts together and typically should not exceed 43 percent of gross income.
- Lenders may allow you to go above 28 percent if you have excellent credit, a large down payment, or very low other debts, but this leaves less room for emergencies.
- Your actual comfort level may be lower than what a lender will allow, and that is normal and wise.
Why lenders use the 28 percent rule
The 28 percent threshold exists because it is the point where most households begin to struggle if something goes wrong. A job loss, medical emergency, or major home repair becomes a crisis if your housing cost is much higher than that.
Lenders care about this because if you cannot pay your mortgage, they have to foreclose — a slow, expensive process that costs them money. They set the 28 percent limit to reduce the chance you will default. It is not about what is fair to you; it is about what is statistically safe for them.
This does not mean you should spend all the way up to 28 percent. Many people find they sleep better at 20 to 25 percent, especially if they have children, aging parents, or unstable work.
The second ratio: total debt-to-income
Lenders also look at a back-end ratio, which includes all your monthly debts, not just housing. This includes your mortgage payment, car loans, student loans, credit card minimums, child support, and any other regular payments you owe.
The standard back-end ratio is 43 percent of gross income. If you earn $4,000 per month, your total debts should not exceed $1,720 per month. If your house payment is $1,120 and you also have a car payment of $400 and student loans of $200, your total is $1,720 — right at the limit.
This ratio matters because it shows whether you can actually afford the house once you account for everything else you owe. Two people earning the same income might may have access to for very different mortgage amounts depending on their other debts.
What counts in your house payment
When lenders calculate whether your payment fits the 28 percent rule, they include more than just the mortgage itself. The payment includes four things, sometimes called PITI:
- Principal and interest — the actual loan payment
- Property taxes — what your city or county charges annually, divided into monthly payments
- Insurance — homeowners insurance, which protects the building itself
- Mortgage insurance — a fee you pay if you put down less than 20 percent, which protects the lender if you default
Property taxes vary widely by location. A $300,000 house might have $200 per month in property taxes in one state and $500 per month in another. This means the same house payment looks different depending on where you buy.
Mortgage insurance (called PMI for conventional loans, or MIP for FHA loans) goes away once you have paid down the loan to 80 percent of the home's value, or once you refinance. Until then, it is part of your monthly cost.
How down payment size affects what you can afford
The amount of money you put down changes what lenders will allow you to borrow. A larger down payment means a smaller loan, which means a smaller monthly payment.
If you put down 20 percent or more, you avoid mortgage insurance entirely, which saves you money each month. This makes it easier to stay within the 28 percent guideline. If you put down less than 20 percent, you pay mortgage insurance on top of everything else, which increases your monthly cost.
Some first-time buyers put down 3 to 5 percent and pay mortgage insurance for years. Others save longer to put down 10 or 15 percent. The trade-off is straightforward: more money down now means lower monthly payments and no mortgage insurance later.
When lenders allow you to exceed 28 percent
Some lenders will approve you for a house payment above 28 percent of income if certain conditions are met. This usually happens when you have excellent credit (740 or higher), a large down payment (15 to 20 percent or more), very low other debts, or significant savings in the bank.
Going above 28 percent is riskier for you, not just for the lender. It means less money for emergencies, less ability to handle a job change, and more stress if something unexpected happens. Just because a lender will allow it does not mean it is wise for your situation.
Some people stretch to 30, 32, or even 35 percent and manage fine — usually because their income is stable, their job is find, and they have savings. Others at 28 percent feel stretched thin. Your own comfort matters more than the guideline.
How to calculate what you can afford
Start with your gross monthly income. This is your paycheck before taxes, not what hits your bank account. If you are paid twice a month, add both paychecks. If you are self-employed, use your average monthly income from the past two years.
Multiply that number by 0.28. That is your 28 percent ceiling for housing. For example, if you earn $5,000 per month gross, 28 percent is $1,400.
Next, subtract what you already owe each month. Add up your car payment, student loans, credit cards (use the minimum payment), child support, and any other regular debts. Subtract that total from your gross income, then multiply by 0.43. That tells you the maximum your total debts can be, including the new house payment.
If both numbers point to the same house payment, use the lower one. If the 28 percent rule says you can afford $1,400 but your other debts mean you can only afford $1,200, the answer is $1,200.
Frequently Asked Questions
Does my house payment include property taxes and insurance?
Yes. When lenders calculate the 28 percent rule, they include your mortgage payment plus property taxes, homeowners insurance, and mortgage insurance if you have it. All four together make up your total monthly housing cost. This is why the same loan amount costs different amounts in different states.
What if I earn money that is not on a regular paycheck?
Lenders count income from self-employment, rental property, bonuses, and side work, but they usually require two years of tax returns to prove it is stable. Some lenders average the past two years; others use only the most recent year. Ask your lender what they require before you explore.
Can I afford a house if my payment is 35 percent of my income?
Some lenders will approve it, especially if you have excellent credit and low other debts. But statistically, households at 35 percent have less cushion for emergencies. If your job is very find and you have savings, it may work. If your income is uncertain or you have little emergency money, it is risky.
Does the 28 percent rule include utilities and maintenance?
No. The 28 percent rule covers only the mortgage payment, property taxes, insurance, and mortgage insurance. It does not include utilities, repairs, yard work, or HOA fees. Those come from what is left of your income after the house payment, so budget for them separately.
What if my spouse and I both work — do we add our incomes together?
Yes. Lenders add both incomes to calculate the 28 percent threshold. If you earn $3,000 and your spouse earns $3,000, your combined gross income is $6,000, and 28 percent is $1,680. Both of you must be on the mortgage for both incomes to count.