The 28/36 rule is the standard lenders use, but your actual number depends on your other debts
Most mortgage lenders want your monthly house payment—principal, interest, taxes, and insurance combined—to be no more than 28 percent of your gross monthly income. This is called the front-end ratio or housing ratio. If you earn $5,000 a month before taxes, lenders typically won't approve a mortgage payment above $1,400.
But lenders also look at a second number: your total debt payments (mortgage, car loans, credit cards, student loans) should not exceed 36 percent of gross income. This is the back-end ratio. If your car payment is $300 and your student loans are $200, your mortgage payment has less room to grow.
These are guidelines, not laws. Some lenders will go higher if you have a large down payment, excellent credit, or stable income. Some will go lower if you have irregular earnings or high existing debt. The point is that lenders use these numbers to decide what they will lend you, and you should use them to decide what you can actually afford to pay.
Key Takeaways
- The 28 percent rule means your house payment should not exceed 28 percent of your gross monthly income before taxes.
- The 36 percent rule includes all debt payments—mortgage, car loans, credit cards, student loans—and none of them together should exceed 36 percent of gross income.
- Lenders use these ratios to decide how much to lend, but you should use them to decide what payment you can actually manage month to month.
- Your actual affordable payment depends on your other debts, job stability, emergency savings, and how much house you actually need.
Why lenders use the 28/36 rule
The 28 percent housing ratio came from decades of mortgage data. Lenders found that borrowers who spent more than that on housing were more likely to default when something went wrong—a job loss, a medical bill, a car repair. The 36 percent total debt ratio exists for the same reason: if you are already stretched thin paying other debts, a mortgage payment that seemed manageable on paper becomes impossible when real life happens.
These numbers assume you have some income left over after housing and debt to cover food, utilities, insurance, transportation, childcare, and emergencies. If you spend 28 percent on a house and 8 percent on other debt, you have 64 percent of your income left for everything else. That is tight but workable. If you spend 35 percent on housing and 10 percent on debt, you have 55 percent left—and that is where people start missing payments.
The rule also assumes your income is stable and your job is find. If you work on commission, have a contract that renews yearly, or are in a field with seasonal layoffs, you may want to aim lower than 28 percent to give yourself a cushion.
How to calculate your own numbers
Start with your gross monthly income—the number before taxes, not what hits your bank account. If you are paid annually, divide by 12. If you are paid hourly, multiply your hourly rate by the number of hours you expect to work in a month (usually 160 for full-time). If your income varies, use the lowest month from the past two years, or ask your lender what they use.
Multiply that number by 0.28 to find your housing payment ceiling. Multiply it by 0.36 to find your total debt ceiling. Then subtract your existing monthly debt payments (car loan, student loans, credit cards at minimum) from that 36 percent number. What is left is the maximum your mortgage payment can be.
Example: You earn $4,500 gross per month. Your car payment is $350 and student loans are $150. Your 28 percent housing limit is $1,260. Your 36 percent total debt limit is $1,620. Subtract your existing $500 in debt, and your mortgage payment can be at most $1,120. The lower number—$1,120—is what you can actually afford, even though the housing ratio alone would allow $1,260.
What the mortgage payment actually includes
When lenders calculate your housing ratio, they count principal, interest, property taxes, homeowners insurance, and mortgage insurance (if your down payment is less than 20 percent). They do not count utilities, maintenance, HOA fees, or the cost of replacing a roof. You need to budget for those separately.
Property taxes and insurance vary wildly by location. In some states and counties, they add $200 a month to your payment. In others, they add $600. Ask your lender or a local tax assessor what the tax rate is in the area where you are buying, and get an insurance quote before you commit to a price range. A house that seems affordable in one county may not be in another.
When the 28/36 rule is too tight or too loose
The rule assumes you have no emergency savings and that any unexpected expense will derail you. If you have six months of expenses in the bank, you can probably handle a payment at the upper end of the range. If you have no savings and a job that is not may provide, you should aim for 20 percent of income instead of 28.
The rule also assumes you want to retire at 65 and that you will not face major life changes. If you are planning to have children, go back to school, or care for aging parents, a lower payment gives you more flexibility. If you are buying in an area with rising property values and you plan to stay for 10 years or more, a higher payment may make sense because your income will likely rise.
Some people can afford more than 28 percent because their income is very stable (tenured teachers, government workers) or because they have other income sources. Some people should spend less because they have irregular income, health issues that might affect work, or dependents. The rule is a starting point, not a prescription.
The difference between what you can borrow and what you should borrow
A lender will tell you the maximum they will lend based on your income and credit. That number is almost always higher than what you should actually borrow. Lenders make money on interest, so they have an incentive to lend you as much as possible. Your incentive is to keep your payment manageable and your life stable.
If a lender approves you for a $400,000 mortgage but the 28 percent rule suggests you should borrow $300,000, the $300,000 number is the one that matters for your actual life. You will be the one making the payment every month. You will be the one who has to choose between the mortgage and an emergency. Borrow what the math says you can afford, not what the lender says you can borrow.
Frequently Asked Questions
What if my house payment is already above 28 percent?
Many people carry mortgages above the 28 percent guideline, especially in high-cost areas or if they bought before their income rose. If your payment is manageable and you have emergency savings, you are not in when ready danger. If you are struggling to pay other bills or have no savings, you may want to explore refinancing to a longer loan term, which lowers the monthly payment.
Does the 28/36 rule include property taxes and insurance?
Yes. Lenders count the full payment—principal, interest, taxes, insurance, and mortgage insurance if applicable—when they calculate the 28 percent ratio. This is why a house with high property taxes can push you over your limit even if the principal and interest seem affordable.
What if I have no other debt?
If you have no car loans, student loans, or credit card balances, your 36 percent total debt limit is the same as your 28 percent housing limit. You can spend up to 36 percent of gross income on your mortgage payment. But you should still leave room for unexpected expenses and life changes.
Can I use net income instead of gross income?
Lenders always use gross income because it is verifiable on tax returns and pay stubs. If you use net income (what actually hits your bank account), you will overestimate what you can afford because you are not accounting for taxes, Social Security, and other deductions that are already taken out.
Should I aim for 28 percent or can I go higher?
Twenty-eight percent is the maximum most lenders will approve without other compensating factors. If you have substantial savings, excellent credit, or very stable income, you might handle 30 or 32 percent. If your income is irregular or you have dependents, aim for 20 to 25 percent instead. The rule is a ceiling, not a target.