The 28/36 rule is the standard lenders use, but your actual number depends on your other debts

Most mortgage lenders will not approve you if your monthly house payment exceeds 28 percent of your gross monthly income. That is the front-end ratio, and it is the ceiling lenders enforce. If you earn $5,000 a month before taxes, lenders typically cap your housing payment at $1,400.

But lenders also look at your back-end ratio — your total monthly debt payments, including the mortgage, car loans, credit cards, and student loans — divided by your gross income. That limit is usually 36 percent. If your back-end ratio already sits at 30 percent because of existing debts, a lender will approve a mortgage payment of only 6 percent of your income, not 28 percent.

These are lending thresholds, not personal finance targets. What you can afford to pay is different from what a lender will lend you. A payment that fits the 28 percent rule can still strain your budget if you have irregular income, high medical costs, or dependents.

Key Takeaways

  • Lenders typically cap your mortgage payment at 28 percent of gross monthly income, calculated before taxes.
  • Your total debt payments — mortgage plus car loans, credit cards, and student loans — should not exceed 36 percent of gross income.
  • If you already carry debt, the 28 percent ceiling shrinks; a lender subtracts your existing monthly payments from the 36 percent threshold.
  • A payment that meets the lender's ratio can still be too high for your actual household budget if your income varies or your expenses are high.
  • Your net income (after taxes) is what you actually spend, so compare your housing payment to that figure, not your gross income.

How lenders calculate the 28 percent threshold

Lenders use your gross monthly income — the amount you earn before taxes, Social Security, and other deductions. If you are salaried, divide your annual salary by 12. If you are self-employed or have variable income, lenders typically average your income over the past two years.

The 28 percent figure includes your mortgage principal and interest, property taxes, homeowners insurance, and mortgage insurance (if your down payment was less than 20 percent). It does not include utilities, maintenance, or HOA fees, even though those are real costs you will pay.

To find your maximum approved payment: multiply your gross monthly income by 0.28. If you earn $4,000 a month gross, your maximum is $1,120. If you earn $6,500 a month gross, your maximum is $1,820. Lenders will not approve a mortgage payment above this number, regardless of how much house you want.

How existing debt reduces your borrowing power

The 36 percent back-end ratio is where existing debt matters. Add up all your monthly debt payments: car loan, student loans, credit cards (lenders use the minimum payment, not your balance), personal loans, and any other installment debts. Then add your proposed mortgage payment. The total should not exceed 36 percent of your gross income.

Example: You earn $5,000 gross per month. Your car payment is $350, student loans are $200, and credit card minimums total $100. That is $650 in existing debt. Your 36 percent threshold is $1,800. Subtract the $650 you already owe: $1,800 − $650 = $1,150. A lender will approve a mortgage payment of up to $1,150, even though the 28 percent rule would allow $1,400.

If you pay off a car loan or credit card before applying for a mortgage, your approved payment amount increases immediately. Lenders recalculate based on your current debts, not debts you plan to pay off later.

The difference between what lenders approve and what you can afford

Lender ratios assume you have no other expenses — no groceries, utilities, childcare, insurance, or medical costs. They also assume your income is stable. If you work on commission, have seasonal income, or are self-employed, a payment that fits the 28 percent rule can leave you short in slow months.

A more realistic personal rule: keep your housing payment to 25 percent of your net income (after taxes). If you take home $3,500 a month after taxes and deductions, aim for a payment around $875. This leaves room for utilities, maintenance, property taxes if they are not escrowed, and the unexpected costs that come with homeownership.

You should also consider your total monthly obligations beyond debt. If you have three children, aging parents you support, or chronic health costs, a payment that leaves you with $500 a month for everything else is not sustainable, even if the lender approves it.

What happens if your debt-to-income ratio is too high

If your back-end ratio exceeds 36 percent, lenders will deny your mortgage application. You have three options: increase your income, reduce your existing debt, or lower the price of the house you are buying.

Reducing debt is usually fastest. Paying off a car loan or credit card before you apply for a mortgage can free up $200 to $500 in monthly payments, which translates to $7,000 to $18,000 more in borrowing power (depending on interest rates). Some lenders will approve you if you commit to paying off a credit card before closing, but you must document this in writing.

If you cannot reduce debt quickly, look at a lower purchase price. A $50,000 reduction in the home price typically lowers your monthly payment by $250 to $300, which may bring your ratio under 36 percent.

How to calculate your own housing payment ratio

Start with your gross monthly income. Divide your proposed mortgage payment by that number, then multiply by 100 to get a percentage. If your mortgage payment is $1,200 and your gross income is $5,000, your ratio is (1,200 ÷ 5,000) × 100 = 24 percent.

For your back-end ratio, add your mortgage payment to all other monthly debt payments. Divide that total by your gross income and multiply by 100. If your mortgage is $1,200, your car payment is $350, and your student loans are $150, your total debt is $1,700. Divide by $5,000 gross income: (1,700 ÷ 5,000) × 100 = 34 percent. You are under the 36 percent threshold.

Use this calculation before you talk to a lender. It tells you what you can expect to hear, and it shows you whether paying off existing debt first would help.

Regional and lender variation in housing ratios

The 28/36 rule is standard across most conventional lenders, but some programs are stricter or more flexible. FHA loans (backed by the Federal Housing Administration) sometimes allow a back-end ratio as high as 43 percent if you have strong credit and savings. VA loans (for military members and veterans) may go to 41 percent. USDA loans (for rural properties) typically follow the 28/36 standard.

Some lenders will approve you at 29 or 30 percent front-end if you have excellent credit, a large down payment, or significant savings. Others will not budge from 28 percent. Shop with multiple lenders — your ratio at one may not be your ratio at another.

Your state and local property taxes also affect what you can afford. In high-tax states like New Jersey or Illinois, property taxes can add $300 to $500 to your monthly payment. In low-tax states like Texas or Florida, they add much less. This means the same house price results in different monthly payments depending on location, which affects how much house you can afford in your area.

Frequently Asked Questions

What if my income is irregular or seasonal?

Lenders average your income over two years if you are self-employed or have variable income. If you earned $40,000 last year and $60,000 this year, they use $50,000 as your income. If your income is trending down, lenders may use a lower average. Document your income with tax returns, profit-and-loss statements, or bank deposits.

Does my housing payment include property taxes and insurance?

Yes. The 28 percent calculation includes mortgage principal and interest, property taxes, homeowners insurance, and mortgage insurance (PMI). It does not include utilities, HOA fees, or maintenance. Ask your lender to provide an estimate of all four components so you know what is included in the ratio.

Can I get approved if my ratio is above 36 percent?

Conventional lenders will not approve you above 36 percent. FHA, VA, and USDA loans have higher thresholds — up to 41 to 43 percent — but only if you meet other requirements like credit score and down payment. Ask your lender which programs you might may have access to for before you assume you are disqualified.

What if I pay off debt right before applying for a mortgage?

Lenders use your current debt obligations, not your history. If you pay off a car loan one month before applying, your approved payment increases immediately. However, do not close credit card accounts after paying them off — closing accounts can lower your credit score and hurt your approval odds.

Should I aim for the maximum the lender approves?

No. The lender's maximum assumes you have no other expenses and your income is stable. A safer target is 25 percent of your net (after-tax) income, which leaves room for utilities, maintenance, property taxes if not escrowed, and unexpected costs. This gives you a cushion if your income drops or expenses rise.