Key takeaways
- The 28/36 rule caps housing costs at about 28% of gross monthly income and total debts at about 36%; the lower limit wins.
- Your housing payment means PITI (principal, interest, taxes, insurance) plus mortgage insurance and HOA dues.
- In our hypothetical example, $90,000 of income and $450 of monthly debt supports a home price of about $272,474 at 6.5%.
- Interest rates and existing debt payments can shift your affordable price by tens of thousands of dollars.
- A lender's preapproval amount is a ceiling, not a target; budget for closing costs, reserves, and maintenance too.
"How much house can I afford?" is the first real question in any home search, and the answer is rarely the number on a lender's preapproval letter. A lender tells you the most it is willing to lend under its guidelines. What you can comfortably afford depends on your income, your existing debts, the full monthly cost of owning a home, and how much cushion you want left over for savings and life. This guide walks through the 28/36 rule, explains PITI, and runs a complete worked example so you can plug in your own numbers.
The 28/36 rule of thumb
The 28/36 rule is a long-standing guideline used across the mortgage industry. It sets two limits based on your gross monthly income (income before taxes and deductions):
- Front-end ratio (28%): your total monthly housing payment should be no more than about 28% of gross monthly income.
- Back-end ratio (36%): your housing payment plus all other monthly debt payments (car loans, student loans, credit card minimums, personal loans, child support) should be no more than about 36% of gross monthly income.
Whichever limit produces the lower housing payment is the one that binds. The back-end figure is the same calculation lenders call your debt-to-income ratio, or DTI. If you want a deeper explanation of how it is measured, see our guide to what debt-to-income ratio means, or run your own figures with the debt-to-income calculator.
Keep in mind that 28/36 is a rule of thumb, not a legal cap. Many loan programs allow higher ratios. FHA loans and some conventional loans run through automated underwriting can approve back-end DTIs well above 36%, sometimes into the mid-40s or higher with strong compensating factors such as cash reserves or a high credit score. Being approved at a higher DTI does not mean that payment will feel comfortable, which is exactly why the conservative rule is still useful.
What PITI means and why it matters
When lenders talk about your "housing payment," they mean more than principal and interest. The standard shorthand is PITI:
- Principal: the portion of each payment that reduces your loan balance.
- Interest: what the lender charges to borrow, based on your rate and balance.
- Taxes: property taxes, usually collected monthly into an escrow account.
- Insurance: homeowners insurance, also typically escrowed.
On top of PITI, many buyers also pay mortgage insurance (private mortgage insurance, or PMI, on a conventional loan with less than 20% down, or the mortgage insurance premium, MIP, on an FHA loan) and HOA dues if the property is in a condo or planned community. All of these count toward the 28% housing figure. Forgetting taxes and insurance is the most common reason buyers overestimate their budget, because in some areas those two items alone add several hundred dollars a month.
Worked example: from income to price range
Here is a step-by-step example for a hypothetical buyer. Every rate and cost below is an illustration, not a quote or a current market rate.
- Start with gross monthly income. Household income of $90,000 a year works out to $7,500 a month.
- Apply the 28% front-end limit. 28% of $7,500 is $2,100 for total housing costs.
- Apply the 36% back-end limit. 36% of $7,500 is $2,700 for all debts. This buyer has a car payment and a student loan totaling $450 a month, leaving $2,250 for housing.
- Take the lower number. The front-end limit of $2,100 is lower than $2,250, so $2,100 is the maximum housing payment.
- Subtract the non-loan costs. Estimated property taxes of $330, homeowners insurance of $125, and PMI of $95 (assuming 10% down on a conventional loan) total $550. That leaves $1,550 a month for principal and interest.
- Convert the payment into a loan amount. At a hypothetical 6.5% fixed rate on a 30-year mortgage, a $1,550 principal-and-interest payment supports a loan of roughly $245,227.
- Add the down payment. If that loan is 90% of the price, the target home price is about $272,474, with a down payment of about $27,247.
So under the 28/36 rule, this buyer's comfortable price range tops out around $272,474, before closing costs. You can repeat the exercise with your own inputs in our mortgage calculator.
How existing debt changes the answer
Now suppose the same buyer carried $900 a month in other debt instead of $450. The back-end limit leaves only $1,800 for housing, which is now lower than the 28% figure, so it binds. After the same taxes, insurance, and PMI, just $1,250 remains for principal and interest. At the same hypothetical 6.5% rate, that supports a loan of about $197,764 and a home price near $219,737. An extra $450 a month in debt payments cut the affordable price by roughly $52,737. Paying down a car loan or credit card before you apply can be one of the most effective ways to raise your budget.
How interest rates change your budget
Your rate has a large effect on purchasing power. The table below holds the principal-and-interest payment at $1,550 and changes only the hypothetical rate on a 30-year fixed loan with 10% down.
| Interest rate | Monthly P&I | Loan amount supported | Approximate home price |
|---|---|---|---|
| 5.5% (hypothetical) | $1,550 | $272,989 | $303,321 |
| 6.5% (hypothetical) | $1,550 | $245,227 | $272,474 |
| 7.5% (hypothetical) | $1,550 | $221,677 | $246,308 |
A two-point swing in rate moves the affordable price by more than $57,013 in this example. That is why your credit score matters so much: a stronger score generally qualifies you for better pricing. Our article on how credit scores affect loan rates explains the relationship.
Costs beyond the monthly payment
A budget built only around the monthly payment can still leave you short on closing day or in your first year of ownership. Plan for these as well:
- Down payment: conventional loans can go as low as 3% down through certain programs, and FHA loans require 3.5% down with a credit score of 580 or higher. Less down means a larger loan and usually mortgage insurance.
- Closing costs: typically around 2% to 5% of the purchase price, covering lender fees, title, appraisal, and prepaid items. Our guide to closing costs breaks them down.
- Cash reserves: some lenders want to see a few months of mortgage payments in savings after closing.
- Maintenance and repairs: a common planning figure is 1% to 2% of the home's value per year, more for older homes.
- Moving, utilities, and furnishing: often higher in a larger home than in an apartment.
What you can afford vs. what you are approved for
Lenders evaluate your application against program guidelines: credit score, DTI, employment history, assets, and the property itself. A preapproval can come in higher than the 28/36 figure, especially if automated underwriting accepts a DTI in the 40s. That number is a ceiling, not a target.
The 28/36 rule also does not see everything in your budget. It ignores childcare, retirement contributions, tuition, insurance premiums, and other costs that do not show up on a credit report. Before you settle on a price range, build a real monthly budget that includes the projected PITI and see what is left. If the remainder feels thin, aim lower. If you want to understand the approval side of the process, our mortgage preapproval guide explains what lenders review and how long a preapproval lasts.
Next steps toward a realistic budget
Once you have a target range, the next step is talking with licensed lenders about real rates and programs. Lending Buddy is not a mortgage lender and does not set rates or make credit decisions; it can connect you with licensed mortgage partners who offer FHA, conventional, and first-time buyer options. Using Lending Buddy is free for borrowers and comes with no obligation to accept any offer. You can learn more on our home loans page. Always confirm any loan officer's license through NMLS Consumer Access before sharing documents.
The bottom line
To estimate how much house you can afford, take 28% of your gross monthly income for housing and 36% for all debts, use the lower result, subtract taxes, insurance, mortgage insurance, and HOA dues, and convert what is left into a loan amount at a realistic rate. Then add your down payment and sanity-check the result against your actual monthly budget. The best price range is one that leaves room for savings, repairs, and the rest of your life. When you are ready to see what licensed partners in the Lending Buddy network can offer, you can Apply Now.
Frequently Asked Questions
Is the 28/36 rule a lending requirement?
No. The 28/36 rule is a conservative rule of thumb, not a legal limit. Many FHA and conventional loans approved through automated underwriting allow higher debt-to-income ratios, sometimes in the mid-40s or above with compensating factors. It remains useful because it describes a payment level most households can carry while still saving and handling unexpected expenses.
Should I use gross or net income to figure out what I can afford?
Lenders calculate ratios using gross income, so the 28/36 rule uses gross income too. For your personal budget, though, net take-home pay is more realistic because it reflects taxes, retirement contributions, and benefits deductions. A good approach is to qualify with gross figures, then confirm the projected payment fits comfortably within your actual monthly take-home budget.
Do property taxes and insurance count toward the 28%?
Yes. The front-end ratio covers your full housing payment, which includes principal, interest, property taxes, and homeowners insurance, plus mortgage insurance and HOA dues if they apply. Leaving taxes and insurance out is one of the most common budgeting mistakes, and in high-tax areas it can overstate what you can afford by a significant amount.
How much should I have saved before buying a home?
Plan for the down payment, closing costs of roughly 2% to 5% of the price, and an emergency cushion after closing. Some lenders also require cash reserves equal to a few months of payments. Holding back savings for repairs and surprises is usually wiser than putting every available dollar toward the down payment.
