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

Before you browse a single listing, you need one number: the most you can responsibly pay for a home. Get it wrong in one direction and you waste months touring houses a lender won’t finance. Get it wrong in the other direction and you become the cautionary tale — “house poor,” with a beautiful kitchen and no money for anything else.

The 28/36 rule, in plain English

Most conventional lenders size your loan with two ratios:

• The front-end ratio (28%): your total monthly housing cost — mortgage payment, property taxes, insurance — should stay at or below 28% of your gross (pre-tax) monthly income.
• The back-end ratio (36%): housing plus all other debt payments — car loans, student loans, credit card minimums — should stay at or below 36% of gross monthly income.

Whichever limit you hit first is the one that caps your budget. This is why two households with identical salaries can qualify for very different homes: a $450 car payment and $300 in student loans consume buying power at roughly the same rate as $150,000 of home price.

A worked example: on a $95,000 salary, gross monthly income is about $7,917. The 28% limit allows roughly $2,217 for housing; the 36% limit allows $2,850 for all debt. With $500 of existing monthly debt, the back-end test leaves $2,350 for housing — so the front-end’s $2,217 is the binding number. Reserve a portion of that for taxes and insurance, convert the rest into a loan at today’s rates, add your down payment, and you have your maximum price. The Affordability Calculator runs this exact sequence in real time.

What the rule doesn’t see

The 28/36 rule is a screening tool, not a verdict. Lenders will also weigh:

• Credit score, which moves your interest rate — and rate moves your budget more than most people expect
• Cash reserves after closing; many lenders want to see several months of payments left over
• Employment history, especially for self-employed buyers
• Loan program: FHA loans, for instance, can stretch to higher ratios

And here’s the uncomfortable part: a lender’s job is to measure whether you can repay, not whether the payment leaves room for the life you want. Plenty of approved borrowers are approved for too much. If you have expensive hobbies, plan to have children, or carry unpredictable income, set your personal ceiling below the formula’s.

Don’t forget the cash you need on day one

Your maximum price isn’t your only constraint — there’s also the cash due at closing. Beyond the down payment, closing costs typically run 2–5% of the purchase price. On a $400,000 home, that’s $8,000–$20,000 you need available, before moving costs and the inevitable first-month repairs. Estimate yours with the Closing Cost Calculator, then pressure-test the resulting monthly payment with the Mortgage Calculator.

The bottom line

Compute the 28/36 number, then make one honest adjustment: subtract whatever monthly amount your real life requires that the formula can’t see. That figure — not the bank’s maximum — is how much house you can afford.