The price a lender approves is not always the price that is comfortable. A simple starting point is the 28/36 rule, which links your income to a monthly housing budget. This guide shows how to use it, works through a full example, and shows how much the interest rate changes the answer. You can check every figure with our mortgage calculator.
A common guideline is to keep housing costs at or below 28% of gross monthly income and total debt payments at or below 36%. On a $90,000 income that is a housing budget of $2,100 a month, which supports a home price of roughly $322,000 at a 6.5% rate with 20% down.
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The 28/36 rule
Lenders often compare your income with two ratios, and the 28/36 rule is a widely used guideline built from them:
- Front-end ratio (28%): your total monthly housing cost should be no more than 28% of your gross (before-tax) monthly income. Housing cost means mortgage principal and interest, property tax, homeowners insurance and any HOA fees.
- Back-end ratio (36%): all monthly debt payments, including housing plus car loans, student loans and credit card minimums, should be no more than 36% of gross monthly income.
You must stay under both limits, so the lower result is your real budget. These are guidelines, not laws. Some loan programs accept higher ratios, and lenders look at credit score, savings and other factors as well.
A worked example
Say your household earns $90,000 a year and has $400 a month in other debt payments (a car loan, for example).
| Step | Calculation | Result |
|---|---|---|
| Gross monthly income | $90,000 ÷ 12 | $7,500 |
| Front-end limit (28%) | $7,500 × 0.28 | $2,100 |
| Back-end limit (36%) | $7,500 × 0.36 | $2,700 |
| Room left after other debts | $2,700 − $400 | $2,300 |
| Housing budget | lower of $2,100 and $2,300 | $2,100 |
The front-end limit is the lower one, so $2,100 a month is the total for the mortgage payment, property tax and insurance together.
Turning a monthly budget into a home price
The budget covers more than the loan payment, so you work backwards. We assume a 30-year fixed loan at 6.5%, a 20% down payment, property tax of 1.2% of the home price per year, and insurance of $150 a month.
- Subtract insurance from the budget: $2,100 − $150 = $1,950 for principal, interest and tax.
- Property tax is 1.2% ÷ 12 = 0.1% of the price each month. The loan is 80% of the price, and at 6.5% over 30 years each dollar borrowed costs about $0.006321 a month. So the monthly cost is price × (0.8 × 0.006321 + 0.001) = price × 0.006057.
- Divide: $1,950 ÷ 0.006057 ≈ $321,966.
Check it by entering that price in the mortgage calculator with a $64,393 down payment (20%), 6.5% and 30 years. The loan is $257,573, principal and interest is about $1,628, tax is $322 and insurance is $150, which adds up to $2,100.
How much the interest rate changes things
The same $2,100 budget buys very different homes depending on the rate. Same assumptions as above (20% down, 30 years, 1.2% tax, $150 insurance):
| Interest rate | Approx. home price | Loan amount | Principal & interest |
|---|---|---|---|
| 5.5% | $351,800 | $281,471 | $1,598 |
| 6.5% | $322,000 | $257,573 | $1,628 |
| 7.5% | $295,700 | $236,589 | $1,654 |
A two-point difference in rate moves the affordable price by about $56,000 on this budget. Rates change often, so use the rate from your lender's quote rather than an average you saw in a headline.
What happens when you have other debts
Keep the same income but suppose other debt payments are $1,000 a month instead of $400. The back-end limit leaves $2,700 − $1,000 = $1,700, which is now lower than the $2,100 front-end limit, so $1,700 becomes the housing budget. Working backwards the same way gives ($1,700 − $150) ÷ 0.006057 ≈ $255,900. Paying off a car loan or card balance before applying can raise the amount you can borrow.
Costs people forget
- Closing costs: fees paid when the loan closes, often cited as roughly 2% to 5% of the price. Ask your lender for a written estimate.
- Maintenance and repairs: a common rule of thumb is to set aside around 1% of the home's value each year.
- Utilities and HOA fees: these are not in the mortgage payment, and HOA fees count toward the housing ratio.
- Moving and furnishing costs in the first months.
- An emergency fund that you do not spend on the down payment.
Down payment and PMI
A larger down payment lowers the loan, the monthly payment and the interest you pay overall. On a conventional loan, putting down less than 20% usually means paying private mortgage insurance (PMI), an extra monthly cost until you build enough equity. The amount depends on your credit and down payment, so ask your lender for a quote and add it to the monthly budget when you compare options. Our mortgage calculator lets you compare different down payments side by side.
Staying comfortable, not just approved
The 28% guideline is based on gross income. Your take-home pay is lower after tax, and the true share of your take-home spent on housing is higher. If you have other goals such as retirement saving, childcare, or a lower-income period, a smaller budget may feel better. A practical test: add up what you pay now for rent and utilities, then check whether the new total plus the costs above still leaves room for savings. Use our salary calculator to see take-home pay and our budget planner to test the full monthly picture.
How to check it in the calculator
Work out your housing budget
Multiply gross monthly income by 0.28, and compare with 0.36 minus your other debts.
Enter a price and down payment
Start with a price near the estimate above and your real down payment.
Use real local numbers
Enter your lender's rate, your area's property tax rate and an insurance quote.
Compare the total with your budget
Adjust the price until the total monthly payment fits under your limit.
Try your own numbers
Enter a price, down payment and rate to see the full monthly cost.
Open the Mortgage CalculatorFrequently Asked Questions
Conclusion
The 28/36 rule gives a quick, honest first estimate: take your income, subtract your debts, and work backwards through the payment to a price. The rate, your other debts and the costs beyond the mortgage can each move the answer by tens of thousands of dollars, so test several scenarios in the mortgage calculator before you start house hunting.
This guide is general education, not financial or lending advice. Examples assume a US-style 30-year fixed mortgage; lenders, rules and local costs vary.