The 28/36 rule is the standard lenders use, but your actual number depends on your other debts
Most mortgage lenders follow the 28/36 rule: your housing payment (mortgage, property tax, homeowners insurance, and HOA fees if applicable) should not exceed 28 percent of your gross monthly income. Your total debt payments—including the mortgage, car loans, credit cards, student loans, and any other monthly obligations—should not exceed 36 percent of gross income.
These are guidelines, not hard limits. Some lenders will go higher if you have a large down payment, excellent credit, or significant savings. Others may stay stricter. The actual percentage a lender will approve depends on your credit score, employment history, debt-to-income ratio, and the size of your down payment.
What matters most is what you can actually afford to pay every month without cutting into food, utilities, or emergency savings. A mortgage you can technically get approved for is not the same as a mortgage you can sustain.
Key Takeaways
- The 28 percent rule means your housing payment should not exceed 28 percent of your gross monthly income; the 36 percent rule includes all debt payments combined.
- Lenders use these ratios as starting points but may approve higher or lower amounts based on credit score, down payment size, and employment stability.
- Your housing payment includes the mortgage principal and interest, property taxes, homeowners insurance, and HOA fees—not just the loan itself.
- Gross income means your pay before taxes and deductions; lenders use this figure, not your take-home pay.
- A mortgage you can afford to pay is different from a mortgage a lender will approve; consider your actual monthly expenses and emergency fund needs.
How lenders calculate the 28 percent housing ratio
Lenders add up four components to get your total housing payment: the mortgage principal and interest, property taxes, homeowners insurance, and homeowners association (HOA) fees if your property has one. They divide this total by your gross monthly income and multiply by 100 to get a percentage.
Example: If your gross monthly income is $5,000 and your total housing payment is $1,200 per month, your housing ratio is 24 percent ($1,200 ÷ $5,000 = 0.24). This falls within the 28 percent guideline.
Property taxes and insurance are the parts many first-time buyers underestimate. Property tax rates vary by county and state—some areas charge 0.3 percent of home value annually, others charge 2 percent or more. Homeowners insurance typically costs $800 to $2,000 per year depending on the home's value, location, and your coverage choices. Both get rolled into your monthly payment if you use an escrow account, which most lenders require.
The 36 percent rule and why your other debts matter
The 36 percent rule is stricter and includes everything: your mortgage payment plus car loans, credit card minimum payments, student loans, personal loans, and any other monthly debt obligations. This total should not exceed 36 percent of your gross monthly income.
If you carry significant student loan debt or have a car payment, this rule can limit how much house you can afford. A lender might approve you for a $300,000 mortgage based on the 28 percent housing rule alone, but reject it because your total debt—including the new mortgage—would exceed 36 percent of income.
Credit card debt counts as the minimum payment you are required to make each month, not the full balance. If you carry a $10,000 balance at a 20 percent interest rate with a $200 monthly minimum, the lender counts $200 toward your debt ratio, not the full $10,000.
Why these percentages are guidelines, not absolutes
The 28/36 rule originated decades ago and remains the industry standard, but individual lenders set their own thresholds. A borrower with a 750+ credit score, 20 percent down payment, and stable employment history might get approved at 40 percent debt-to-income ratio. A borrower with a 620 credit score and 3 percent down might be rejected at 35 percent.
Government-backed loans have different rules. FHA loans (insured by the Federal Housing Administration) typically allow up to 43 percent debt-to-income ratio. VA loans (for military members and veterans) sometimes go higher. Conventional loans (not government-backed) are more likely to stick closer to 36 percent.
The lender also considers your savings and employment stability. If you have six months of mortgage payments in savings and have worked at the same job for five years, a lender may be more flexible. If you changed jobs recently or have minimal savings, they may be stricter.
What you can actually afford versus what a lender will approve
A lender's approval is based on income and debt ratios, not on your actual living expenses. If you spend $800 per month on groceries, $300 on utilities, $200 on gas, and $400 on childcare, that is $1,700 in monthly expenses before your mortgage payment even arrives. A lender does not factor these into their decision.
Use the 28 percent rule as a ceiling, not a target. If you can comfortably afford 20 percent of your income going to housing while still covering food, utilities, insurance, transportation, and saving for emergencies, that is a safer choice than maxing out at 28 percent.
Build in a buffer for property tax increases, insurance rate hikes, and maintenance costs. Homeowners typically spend 1 to 2 percent of the home's value annually on repairs and upkeep. A $300,000 home might cost $3,000 to $6,000 per year in maintenance—money that comes from your take-home pay, not your gross income.
How to calculate your own housing ratio
Start with your gross monthly income. This is your salary before taxes, retirement contributions, or health insurance deductions. If you are self-employed, use your average monthly income from the past two years.
Multiply your gross monthly income by 0.28 to find the maximum housing payment the 28 percent rule allows. Multiply by 0.36 to find your total debt ceiling.
Get a mortgage estimate from a lender or use an online calculator to see what your monthly payment would be at different loan amounts. Add your estimated property taxes (your real estate agent or county assessor can provide this), homeowners insurance quote, and HOA fees if applicable. This total is your housing payment.
Divide your housing payment by your gross monthly income and multiply by 100. If the result is 28 percent or lower, you are within the standard guideline. If it is higher, you may need a larger down payment, a less expensive home, or a co-borrower with additional income.
Regional variation in property taxes and insurance costs
Property tax rates vary dramatically by state and county. New Jersey, Illinois, and Texas have some of the highest effective property tax rates (1.5 to 2 percent of home value annually). Hawaii, Alabama, and Louisiana have some of the lowest (under 0.5 percent). This difference can add $200 to $400 per month to your housing payment on the same home price.
Homeowners insurance also varies by location. Homes in hurricane-prone areas, flood zones, or high-crime neighborhoods cost more to insure. A $300,000 home might cost $100 per month to insure in one state and $200 per month in another.
When comparing affordability across regions, account for these differences. A $400,000 home in a low-tax state might have a lower total housing payment than a $300,000 home in a high-tax state, even though the purchase price is higher.
Frequently Asked Questions
Does the lender count my take-home pay or gross income?
Lenders use gross income—your pay before taxes and deductions. If you earn $60,000 per year, the lender counts $5,000 per month, not your actual take-home of $3,500 or $4,000. This is why the 28 percent rule can feel tight when you look at your actual bank account.
What if I have a co-signer or co-borrower?
Both incomes count toward the ratio. If you earn $4,000 per month and your co-borrower earns $3,000, the lender uses $7,000 as your combined gross income. However, both of your debts also count, so a co-borrower with existing loans may not help as much as you expect.
Can I get approved above the 36 percent debt-to-income ratio?
Some lenders will approve above 36 percent, particularly for FHA loans or if you have compensating factors like a large down payment, excellent credit, or substantial savings. However, most conventional lenders stay at or below 36 percent. Ask your lender what their maximum is before you spend time on applications.
Do student loans count toward my debt ratio even if they are in deferment?
Yes. Lenders count the full monthly payment amount even if you are currently in deferment or on an income-driven repayment plan. If your student loan payment would be $300 per month when repayment begins, the lender counts $300, not zero.
What if my income varies month to month?
If you are self-employed or work on commission, lenders typically average your income over the past two years. Some require three years of tax returns. If your income is trending upward, you may be able to use an average that reflects recent growth, but this varies by lender.