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28/36 Rule • Max Home Price • Monthly Payment Breakdown
Car, student loans, credit cards
Enter your income, debts, and down payment to find your maximum home price using the banker-approved 28/36 rule.
28% Front-End Rule
Your housing costs (P&I + tax + insurance + HOA) should not exceed 28% of gross monthly income.
36% Back-End Rule
All monthly debts including housing should not exceed 36% of gross income. This is what lenders check.
PMI Warning
Down payment under 20%? You'll pay Private Mortgage Insurance (~0.5–1% annually) until you hit 20% equity.
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⚠️ Results are estimates. Consult a mortgage professional.
Disclaimer: Results are estimates for educational purposes only and should not be considered financial advice. Consult a licensed financial advisor before making investment, mortgage, or major financial decisions.
Home affordability is calculated using two debt-to-income ratios that lenders use to determine how much mortgage you qualify for. The 28/36 rule is the standard: housing costs should not exceed 28% of gross monthly income, and total debt payments should not exceed 36%. Your maximum home price is then back-calculated from the maximum mortgage payment your income supports.
The 28/36 Rule
Mortgage P+I + property tax + insurance ÷ gross monthly income
Housing + car loans + student loans + credit cards ÷ gross monthly income
Income: $100,000/year ($8,333/month) | Other debts: $600/month | Down payment: 20% | Rate: 7%
Max housing payment (28%): $8,333 × 0.28 = $2,333/month.
Max housing per back-end (36% – $600 other debt): $8,333 × 0.36 – $600 = $2,400/month.
Binding constraint: $2,333/month. At 7%, 30yr, 20% down → max home price ≈ $350,000.
The most widely used guideline is the 28/36 rule: your monthly mortgage payment (principal + interest + taxes + insurance) should not exceed 28% of your gross monthly income, and total monthly debt payments should not exceed 36%. On a $90,000 annual salary ($7,500/month gross): maximum mortgage payment ≈ $2,100/month. At 7% interest over 30 years with 10% down, this supports a home price of roughly $290,000–$310,000. Higher down payments and lower interest rates extend affordability significantly.
The 28/36 rule is a debt-to-income guideline used by most mortgage lenders: no more than 28% of gross monthly income on housing costs (the "front-end" ratio), and no more than 36% on total debt payments including housing, car loans, student loans, and credit cards (the "back-end" ratio). Most conventional mortgage lenders use a maximum back-end DTI of 43–45%. FHA loans allow up to 50% DTI in some cases. A lower DTI generally qualifies you for better interest rates.
At 7% interest, 30-year term, 20% down ($80,000): principal + interest = $2,129/month. Add estimated taxes + insurance of $500/month: total PITI ≈ $2,629/month. To keep housing at 28% of gross income: $2,629 ÷ 0.28 = $9,389/month gross = $112,670/year. With other debts (car, student loans), you would need even higher income to stay within the 36% total DTI rule. First-time buyers should also budget 2–5% of purchase price for closing costs ($8,000–$20,000).
Minimum down payment varies by loan type: Conventional loan: 3% minimum (but below 20% requires PMI costing 0.5–1.5% of loan/year). FHA loan: 3.5% with credit score 580+, 10% with score 500–579. VA loan: 0% down for eligible veterans and active military. USDA loan: 0% down for eligible rural properties. Practically speaking, 20% down eliminates PMI and results in the lowest monthly payment. On a $350,000 home: 3% = $10,500; 10% = $35,000; 20% = $70,000.
Minimum credit scores by loan type: Conventional loan: 620 (most lenders prefer 660+). FHA loan: 580 for 3.5% down (500–579 with 10% down). VA loan: No official minimum, but most lenders require 620. Jumbo loan: typically 700–720+. Your credit score also determines your interest rate. The difference between a 620 score and a 760+ score on a 30-year $300,000 mortgage can be 1–1.5 percentage points, meaning $50,000–$90,000 more in total interest over the loan term.
Upfront costs: down payment (3–20%+), closing costs (2–5% of loan), home inspection ($300–$600), appraisal ($400–$700), moving costs ($1,000–$5,000). Ongoing costs beyond the mortgage: property taxes (average 1.1% of home value/year), homeowner's insurance ($1,200–$2,500/year), PMI if down payment under 20% ($1,200–$5,000/year), HOA fees if applicable ($200–$600/month in many communities), maintenance and repairs (budget 1–2% of home value/year = $3,000–$7,000 for a $350,000 home).
The "right time" to buy is personal, not market-driven. Questions to ask: Do you plan to stay 5+ years? (needed to break even on transaction costs). Do you have 3–6 months emergency fund beyond your down payment? Is your total monthly housing cost below 28% of gross income? Do you have stable employment? High mortgage rates (6.5–7.5% in 2024–2025) reduce purchasing power compared to 2020–2021 levels. However, trying to time the market on rates or prices has historically been less important than individual financial readiness and a long-term horizon.
Private Mortgage Insurance (PMI) is required on conventional loans with less than 20% down payment. It costs 0.5%–1.5% of the loan amount per year, typically $1,000–$3,000/year on a typical mortgage. PMI protects the lender (not you) in case of default. To avoid PMI: put 20% down, use a VA or USDA loan (no PMI by design), use a piggyback loan (80-10-10 structure), or choose lender-paid PMI (slightly higher rate instead of monthly fee). Once your equity reaches 20%, you can request PMI removal; it auto-cancels at 22% equity by law.
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