How Much House Can I Afford? The 28/36 Rule, Worked in Full

The two ratios every underwriter starts with

Mortgage underwriting begins with two fractions, both computed on your gross monthly income (before tax — lenders work in gross, which is the first reason their answer feels generous):

• The front-end ratio (housing ratio): your total monthly housing cost — principal, interest, property tax, homeowners insurance, HOA dues and mortgage insurance — divided by gross monthly income. The classic ceiling is 28%.
• The back-end ratio (total debt ratio, or DTI): housing cost plus every other recurring monthly debt payment, divided by the same income. The classic ceiling is 36%.

Your housing budget is whichever ceiling bites first. Earn $110,000 a year ($9,166.67 a month gross) and the front-end ceiling is 0.28 × $9,166.67 = $2,566.67 a month for housing. If you also carry $450 a month of other debts, the back-end ceiling leaves 0.36 × $9,166.67 − $450 = $2,850.00 for housing. The front-end rule is lower, so $2,566.67 is your budget — the example below is limited by the 28% housing rule, exactly as the site's affordability calculator reports for these inputs.

28/36 is a convention, not a law. Modern automated underwriting approves well beyond it: Fannie Mae's system can accept a back-end ratio up to about 50%, FHA manual underwriting starts from 31/43 (its scorecard stretches much further), and the VA uses a 41% guideline alongside a residual-income test. Treat 28/36 as the conservative benchmark lenders quote publicly — and the one this guide uses — not as the maximum anyone will ever approve. The DTI calculator shows both of your ratios against all of these benchmarks.

What counts as a housing cost

First-time buyers routinely budget for principal and interest and forget the rest. Underwriters do not. The monthly housing cost in the front-end ratio is the full carrying cost of the house:

Property tax is the component that varies most by address: state average effective rates run from under 0.3% of value a year in Hawaii to around 1.9% in New Jersey. The example uses the US average of 0.90%; the calculator lets you pick your state, and the difference alone can move the affordable price by tens of thousands of dollars.

What counts as a debt (and what does not)

For the back-end ratio, lenders count the minimum required monthly payments on debts that appear on your credit report or application: car loans, student loans, credit-card minimums, personal loans, and court-ordered payments such as child support. They do not count rent you are about to replace, utilities, groceries, subscriptions or income tax — costs that are real in your budget but invisible to the ratio. Debts with only a few payments left (often under ten months) are sometimes excluded by the underwriter, and a co-signed loan can count against you even if someone else makes the payments. If your back-end ratio is the binding one, paying down a small-balance debt outright — eliminating its monthly payment entirely — raises your housing budget more per dollar than the same money added to your down payment.

A worked example, dollar by dollar

Put it together for a buyer earning $110,000, with $450 a month of existing debts, $60,000 saved for a down payment, a 6.5% 30-year rate, US-average property tax and $1,800 a year of insurance. The budget is $2,566.67 (28% rule). Solving backwards — find the highest price whose full monthly cost fits the budget — gives:

Two details in that table deserve attention. First, the down payment is 16.1% of the price, not 20%, so PMI applies — roughly 0.6% of the loan per year on the calculator's standard assumption, $156.63 a month that buys the buyer nothing but permission to borrow. Second, the price the rule produces is not a round number, because it is the output of a solve, not a multiple of income. (The old "buy at 3× your salary" shortcut would say $330,000 — at today's rates and average taxes, the 28/36 rule is a little more generous than the shortcut; at 3% mortgage rates it was far more generous, which is why income multiples mislead.)

Sanity-check the method against the calculator's own defaults — $100,000 income, $400 debts, $40,000 down, 6.8% — and the same solve gives a maximum price of $317,161, limited by the 28% rule. Change any input and the budget logic stays identical; only the arithmetic moves.

How much the interest rate moves the answer

Because the budget is a monthly payment, the affordable price is really a question about how much principal a payment can service at today's rate. Same buyer, same budget, three rates:

One percentage point of rate is worth roughly $25,000–29,000 of house on this budget — in both directions. It is why a rate buydown or a better credit score can matter as much as a raise, and why "the house we could afford" changed so violently when rates rose from 3% to 7%: the incomes did not move; the price a fixed payment can carry did.

The down payment does two jobs

A bigger down payment raises your affordable price almost dollar for dollar — it is cash converted directly into house. But it also works on the monthly cost: cross the 20% threshold and PMI disappears entirely, which both frees budget every month and removes a charge that never builds equity. In the worked example, saving roughly $14,650 more (to reach 20% of $373,270) would remove the $156.63 PMI line — and that freed budget would itself support a slightly higher price. Conversely, raiding the down payment to zero rarely helps: the loan grows, PMI arrives, and the monthly cost rises on both counts. The one thing not to do is spend the down payment down to your last dollar — the next section explains why.

Why the lender's maximum is a ceiling, not a budget

• The ratios use gross income. Your life runs on net. A $2,566.67 housing payment is 28% of gross pay but commonly 36–40% of take-home pay at this income.
• Closing costs are not in the price. Budget a further few percent of the price for lender fees, title, appraisal and prepaid escrows, on top of the down payment.
• Houses consume money the ratios ignore: maintenance and repairs (a common planning allowance is around 1% of the value per year), furnishing, and the utility bills of a larger space.
• The ratios assume your other spending is frictionless. Childcare, a second car, or a planned career break do not appear in DTI — but they appear in your bank account every month.
• Reserves matter to lenders too. Arriving at closing with the down payment spent to zero can fail underwriting and leaves no cushion for the first broken appliance.

A sensible personal target is to borrow the amount whose payment you can carry at the back-end ratio on net income, with reserves left over — and to treat the 28/36 answer as the outer fence. Run your own numbers in the home affordability calculator, then stress-test the result in the mortgage calculator at a rate one point higher. If the payment still works, the house probably fits your life, not just the lender's ratios. How that payment then behaves over 30 years is the subject of our guide to how amortization works.