How Much House Can You Really Afford? The 28/36 Rule Explained

When I got pre-approved for a mortgage, my lender told me I qualified for a $450,000 home. I was thrilled—until I sat down with a spreadsheet and realized that buying a $450,000 home would leave me with $300 per month for groceries, gas, and everything else after paying my mortgage, car loan, student loans, and utilities.

I was approved for way more house than I could comfortably afford.

This is where the 28/36 rule comes in—a simple guideline that helps you figure out what you can actually afford based on your income and debts, not just what a lender will approve you for.

Here’s how the 28/36 rule works, why lenders sometimes approve you for too much house, and how to calculate your true affordability so you don’t end up house-poor.

What Is the 28/36 Rule?

The 28/36 rule is a debt-to-income (DTI) guideline used by lenders to determine how much house you can afford. It consists of two limits:

The 28% Rule (Front-End Ratio)

Your total housing expenses should not exceed 28% of your gross monthly income.

Housing expenses include:

• Principal and interest (P&I)
• Property taxes
• Homeowners insurance
• HOA fees (if applicable)
• PMI (if putting less than 20% down)

This is called your front-end ratio or housing ratio.

The 36% Rule (Back-End Ratio)

Your total monthly debt payments (including housing expenses) should not exceed 36% of your gross monthly income.

Total debts include:

• Housing expenses (P&I, taxes, insurance, HOA, PMI)
• Car loans
• Student loans
• Credit card minimum payments
• Personal loans
• Child support/alimony

This is called your back-end ratio or debt-to-income ratio (DTI).

How the 28/36 Rule Works: Real-Life Example

Let’s say you make $80,000 per year ($6,667 per month gross income).

Front-End Ratio (28%)

28% of $6,667 = $1,867 maximum monthly housing payment

This includes:

• Principal and interest: $1,400
• Property taxes: $250
• Homeowners insurance: $150
• PMI: $67

Total: $1,867 ✅ Meets the 28% rule.

Back-End Ratio (36%)

36% of $6,667 = $2,400 maximum total debt payments

This includes:

• Housing expenses: $1,867
• Car loan: $350
• Student loans: $150
• Credit cards: $33

Total: $2,400 ✅ Meets the 36% rule.

If your car loan were $600/month instead of $350, your total debts would be $2,650—exceeding the 36% limit. You’d need to either:

• Pay off some debt before applying for a mortgage
• Lower your housing budget
• Increase your income

Why Lenders Approve More Than the 28/36 Rule Allows

Here’s the dirty secret: lenders don’t actually follow the 28/36 rule anymore—at least not strictly.

Most conventional loan programs allow:

• Front-end ratio up to 33-38% (higher than 28%)
• Back-end ratio up to 43-50% (higher than 36%)

FHA loans allow even more:

• Front-end ratio up to 31-40%
• Back-end ratio up to 43-57% (with compensating factors)

Why Do Lenders Allow Higher Ratios?

1. Mortgage insurance and automation: Lenders use automated underwriting systems that approve higher DTIs if you have strong credit, large down payments, or cash reserves.

2. Compensating factors: High income, significant savings, or low debt elsewhere can justify higher housing payments.

3. Lenders make more money: The bigger your loan, the more interest and fees the lender earns.

Real-Life Example: My Pre-Approval vs My Comfort Zone

My income: $90,000/year ($7,500/month gross)

What the lender approved me for:

• Front-end ratio: 38% ($2,850/month housing)
• Back-end ratio: 48% ($3,600/month total debts)
• Loan amount: $450,000 home purchase

What I could comfortably afford based on 28/36:

• Front-end ratio: 28% ($2,100/month housing)
• Back-end ratio: 36% ($2,700/month total debts)
• Loan amount: $330,000 home purchase

The lender approved me for a home $120,000 more expensive than what I could comfortably afford. If I’d bought at the top of my pre-approval, I would have been house-poor—struggling to save, travel, or handle unexpected expenses.

How to Calculate Your Affordable Home Price Using 28/36

Let’s walk through the calculation step-by-step.

Step 1: Calculate Your Gross Monthly Income

Add up your total annual income (before taxes) and divide by 12.

Example:

• Annual salary: $80,000
• Gross monthly income: $80,000 ÷ 12 = $6,667

Include all stable income sources:

• Base salary
• Bonuses (if consistent)
• Commissions (average over 2 years)
• Rental income (75% of gross rents)
• Side income (if documented over 2 years)

Step 2: Calculate Your Maximum Housing Payment (28% Rule)

Multiply your gross monthly income by 28%.

Example:

• $6,667 × 0.28 = $1,867 maximum housing payment

Step 3: Calculate Your Maximum Total Debt Payments (36% Rule)

Multiply your gross monthly income by 36%.

Example:

• $6,667 × 0.36 = $2,400 maximum total debt payments

Step 4: Subtract Existing Debts to Find Your Housing Budget

Subtract your current monthly debt payments from your maximum total debt payments.

Example:

• Maximum total debts: $2,400
• Existing debts: $533 (car $350, student loans $150, credit card $33)
• Available for housing: $2,400 - $533 = $1,867

If this number is lower than your front-end ratio limit ($1,867 in this example), your existing debts are restricting your budget. You’d need to pay off debts to increase your housing budget.

Step 5: Subtract Property Taxes, Insurance, and HOA to Find P&I Budget

Estimate monthly property taxes, homeowners insurance, HOA fees, and PMI (if applicable), then subtract from your housing budget.

Example:

• Maximum housing payment: $1,867
• Property taxes: $250/month (estimate: 1.2% annual property tax ÷ 12)
• Homeowners insurance: $150/month
• PMI: $67/month (if putting less than 20% down)
• HOA fees: $0
• Available for P&I: $1,867 - $250 - $150 - $67 = $1,400

Step 6: Convert P&I to Home Price

Use a mortgage calculator to determine what home price you can afford with your P&I budget, down payment, and current interest rates.

Example:

• P&I budget: $1,400/month
• Interest rate: 6.75%
• Down payment: 5% ($20,000)
• Loan amount: ~$265,000
• Home price: $265,000 ÷ 0.95 = $279,000

So with $80,000 income, $533 in existing debts, and a 5% down payment, you can afford a home around $279,000 using the 28/36 rule.

Front-End Ratio vs Back-End Ratio: Which Matters More?

Both ratios matter, but back-end ratio (total DTI) is usually the limiting factor for most buyers.

When Front-End Ratio Limits You

If you have low or no debt, your front-end ratio (28%) will be your constraint.

Example:

• Income: $6,667/month
• Front-end limit: $1,867 (28%)
• Back-end limit: $2,400 (36%)
• Existing debts: $100/month
• Limiting factor: Front-end ratio (you can’t use the full $2,400 because housing alone can’t exceed $1,867)

When Back-End Ratio Limits You

If you have significant debt (car loans, student loans, credit cards), your back-end ratio (36%) will be your constraint.

Example:

• Income: $6,667/month
• Front-end limit: $1,867 (28%)
• Back-end limit: $2,400 (36%)
• Existing debts: $800/month
• Available for housing: $2,400 - $800 = $1,600
• Limiting factor: Back-end ratio (your housing budget is capped at $1,600 instead of $1,867 because of existing debts)

Takeaway: If your back-end ratio limits you, pay off debt before buying to increase your housing budget.

How Debt-to-Income (DTI) Limits Vary by Loan Type

Different loan programs have different DTI limits, which affects how much you can borrow.

Conventional Loans

• Maximum front-end ratio: 28-38% (with strong credit/reserves)
• Maximum back-end ratio: 36-50% (with automated approval)

Typical limit: 43% back-end DTI for most borrowers.

FHA Loans

• Maximum front-end ratio: 31-40%
• Maximum back-end ratio: 43-57% (with compensating factors like high credit score or cash reserves)

Typical limit: 43-50% back-end DTI.

VA Loans

• No official front-end ratio limit
• Maximum back-end ratio: 41% (can go higher with residual income test)

VA loans use a residual income calculation instead of strict DTI—meaning they look at how much money you have left after all debts, which is often more flexible.

USDA Loans

• Maximum front-end ratio: 29%
• Maximum back-end ratio: 41%

USDA loans are stricter than conventional or FHA.

What Happens If You Ignore the 28/36 Rule?

I know people who bought homes at the top of their pre-approval (48-50% DTI) and deeply regretted it. Here’s what happens when you’re house-poor:

Financial Stress

• No emergency fund: One unexpected car repair or medical bill becomes a crisis.
• No savings: You can’t save for retirement, vacations, or future goals.
• Constant anxiety: Every paycheck goes to bills with nothing left over.

Lifestyle Sacrifices

• No dining out, no travel, no hobbies: All discretionary spending disappears.
• Delayed maintenance: You can’t afford to fix things when they break, leading to bigger problems later.
• Relationship stress: Money fights become constant.

Inability to Handle Rate Increases or Income Changes

If you have an adjustable-rate mortgage and rates rise, or if you lose your job, you’re immediately at risk of foreclosure because you have no financial cushion.

Real-life story: My friend bought a $550,000 home on a $110,000 salary (50% DTI). Two years later, his furnace died ($6,000 replacement), his roof started leaking ($8,000 repair), and he had to put both on credit cards because he had no savings. He’s now carrying $14,000 in high-interest debt and regrets buying such an expensive home.

How to Find Your True Comfort Zone (Beyond 28/36)

The 28/36 rule is a good starting point, but your personal comfort zone might be different.

Questions to Ask Yourself

1. How stable is your income? If you’re a freelancer, commissioned salesperson, or work in a volatile industry, you might want a lower DTI (25/33 or lower) to handle income fluctuations.

2. How much do you value financial flexibility? If you prioritize travel, hobbies, and experiences, keep your housing payment under 25% so you have cash for those things.

3. How risk-averse are you? If you sleep better with a financial cushion, aim for 20-25% front-end ratio instead of 28%.

4. Do you expect income growth? If you’re early in your career and expect raises, you might be comfortable with 30-33% knowing your income will increase.

5. How much do you have in reserves? If you have 12+ months of expenses saved, you can comfortably handle a higher DTI. If you have minimal savings, stick to lower DTI to avoid financial stress.

My Personal Comfort Zone

My lender approved me for 48% DTI, but I chose a home that kept me at 32% DTI. This gave me:

• Emergency fund: 6 months of expenses saved
• Retirement savings: 15% of income going to 401(k)
• Travel budget: $4,000/year for vacations
• Peace of mind: I don’t stress about money

Buying less house than I was approved for was the best financial decision I’ve made.

How to Improve Your Affordability

If the 28/36 rule shows you can’t afford the home you want, here are strategies to increase your budget:

1. Pay Off Debt

Every $100/month in debt you eliminate frees up $100/month for housing.

Example:

• Current DTI: 40% ($800 in debts)
• Pay off car loan: -$400/month debt
• New DTI: 34% ($400 in debts)
• New housing budget: +$400/month

2. Increase Your Income

Raises, side hustles, or additional income sources increase your gross income and expand your ratios.

Example:

• Current income: $6,667/month → 28% = $1,867 housing budget
• New income (raise + side hustle): $7,500/month → 28% = $2,100 housing budget
• Increase: +$233/month housing budget

3. Improve Your Credit Score

Higher credit scores unlock better interest rates, which lowers your monthly P&I payment and stretches your budget.

Check your middle credit score and work on improving it before applying for a mortgage to maximize your affordability.

4. Save a Larger Down Payment

Larger down payments reduce your loan amount, lower your monthly payment, and eliminate PMI (if you hit 20% down).

Example:

• 5% down on $300,000 home: $285,000 loan, $1,850/month P&I (at 6.75%)
• 10% down on $300,000 home: $270,000 loan, $1,752/month P&I (at 6.75%)
• Savings: $98/month

5. Buy in a Lower-Cost Area

If your desired home price exceeds your 28/36 budget, consider:

• Buying in a more affordable neighborhood
• Buying a smaller home
• Buying a fixer-upper and renovating over time

Online Affordability Calculators (And Why They’re Often Wrong)

Many online calculators estimate affordability based on aggressive DTI assumptions (45-50%), not the conservative 28/36 rule.

What to Watch Out For

• Default DTI assumptions: Many calculators assume 43-45% DTI, inflating your budget
• Optimistic interest rates: Calculators may show rates lower than you’ll actually get
• Ignored costs: Some calculators exclude PMI, HOA fees, or property tax increases

How to Use Calculators Wisely

1. Manually adjust DTI to 28/36 if the calculator allows
2. Input your actual middle credit score to get realistic rate estimates
3. Add PMI, taxes, insurance, and HOA fees to see your true monthly payment
4. Add a 10-15% cushion to account for unexpected costs

Connect with experienced purchase loan officers through Browse Lenders to get personalized affordability calculations based on your income, debts, and credit.

Final Thoughts: Buy What You Can Afford, Not What You’re Approved For

The 28/36 rule isn’t a law—it’s a guideline to help you avoid financial stress. Lenders will often approve you for more house than you can comfortably afford because they profit from larger loans.

But here’s the truth: just because you’re approved for $450,000 doesn’t mean you should spend $450,000.

The sweet spot is finding a home that:

• Meets the 28/36 rule
• Leaves room for savings, travel, and life
• Doesn’t cause financial anxiety
• Allows you to build wealth instead of just making payments

I bought a home at 32% DTI instead of 48% DTI, and it’s given me financial freedom, peace of mind, and the ability to enjoy life—not just survive paycheck to paycheck.

Use the 28/36 rule as a starting point, then adjust based on your personal comfort zone. Your future self will thank you.

Calculate your true affordability, check your middle credit score, and connect with trusted lenders through Browse Lenders to find a purchase loan that fits your budget—and your life.