The standard guideline is 28 percent of your gross monthly income
Most lenders use the 28/36 rule when deciding how much to lend you for a mortgage. The first number — 28 percent — is the maximum portion of your gross monthly income (before taxes) that should go toward your house payment alone. This includes your mortgage principal and interest, property taxes, homeowners insurance, and mortgage insurance if you have it.
This is not a law. It is a lending standard that most banks and mortgage companies follow because it reflects what borrowers historically have been able to afford without defaulting. Some lenders will go higher, especially if you have a strong credit score or a large down payment. Some will stay lower. But 28 percent is the number you will see most often when you talk to a lender about how much house you can afford.
The second number in the rule — 36 percent — is your total debt ceiling. This means all your monthly debt payments (mortgage, car loans, credit cards, student loans, everything) should not exceed 36 percent of your gross income. If you already carry student loans or a car payment, your available mortgage budget shrinks.
Key Takeaways
- The 28/36 rule means your house payment should not exceed 28 percent of your gross monthly income, and all debt payments combined should not exceed 36 percent.
- Your house payment includes mortgage principal and interest, property taxes, homeowners insurance, and mortgage insurance — not just the loan itself.
- If you earn $60,000 per year, your gross monthly income is $5,000, so your house payment should stay around $1,400 or less.
- Lenders may approve you for more than the 28 percent guideline, but borrowing at that higher level increases your risk of financial strain.
- Your actual affordable payment depends on your other debts, down payment size, local property taxes, and insurance costs in your area.
How to calculate your own 28 percent number
Start with your gross annual income — the amount you earn before taxes are taken out. Divide that by 12 to get your gross monthly income. Then multiply that monthly figure by 0.28.
If you earn $60,000 per year, your gross monthly income is $5,000. Multiply $5,000 by 0.28 and you get $1,400. That is the maximum your lender will typically want to see you spend on housing each month.
If you are self-employed or your income varies, lenders usually average your income over the past two years. If you recently changed jobs or took a raise, bring documentation — most lenders want to see a two-year history to confirm the income is stable.
What counts as part of your house payment
When a lender calculates whether you fit the 28 percent rule, they include more than just your mortgage principal and interest. They also count property taxes, homeowners insurance, and mortgage insurance (if your down payment was less than 20 percent). Some lenders also include homeowners association fees if you are buying a condo or townhome.
This matters because these costs vary widely by location. A $300,000 house in a low-tax state with low insurance rates might have a total monthly payment of $1,600, while the same house in a high-tax, high-risk area could be $2,000 or more. When you are shopping for a house, ask your lender for an estimate that includes all these costs, not just the loan payment itself.
Why lenders sometimes approve you for more
If a lender pre-approves you for a mortgage larger than 28 percent of your income, it does not mean you should borrow that much. Lenders are in the business of lending, and they have incentives to approve larger loans. Some lenders will go to 40 or even 43 percent of gross income if you have excellent credit, a large down payment, or very low other debts.
Borrowing at that level leaves little room for emergencies, job changes, or unexpected repairs. A furnace replacement, a medical bill, or a period of reduced hours can quickly turn an affordable payment into a burden. The 28 percent guideline exists because it is the level at which most households can still cover other expenses and save.
How your other debts affect your house payment budget
The 36 percent rule is where your other debts come into play. If you earn $5,000 per month, your total debt ceiling is $1,800. If you already have a $300 car payment and $200 in student loan payments, you have only $1,300 left for your house payment — less than the 28 percent guideline would allow.
Before you start house hunting, add up all your monthly debt payments: car loans, student loans, credit card minimums, personal loans, anything you owe. Subtract that total from 36 percent of your gross income. The remainder is what you have available for a house payment. If that number is lower than 28 percent of your income, your other debts are the limiting factor.
Paying down debt before you buy can significantly increase your borrowing power. Even paying off a car loan or credit card before explore for a mortgage can free up hundreds of dollars per month in your budget.
Regional differences in what you can actually afford
The 28/36 rule is a national standard, but what you can actually afford varies by where you live. In areas with high property taxes (like New Jersey or Illinois), your property tax bill alone might consume a large portion of your payment. In areas with high insurance costs (coastal regions prone to hurricanes or earthquakes), insurance can add $200 or more per month.
A $1,400 monthly payment in a low-cost area might buy you a $350,000 house, while the same payment in a high-cost area might buy you a $250,000 house. When you are calculating your budget, use actual quotes from local insurance companies and research property tax rates in the specific neighborhoods you are considering. Do not rely on national averages.
When to stretch beyond 28 percent and when not to
Some situations make it reasonable to go slightly above the 28 percent guideline. If you have no other debt, a stable job with a long history at your employer, a large emergency fund, and you are buying in a stable market, going to 30 or 32 percent might be manageable. If you are buying your first home and prices in your area are rising, waiting to save more might mean you never afford a house at all.
Other situations make it dangerous to stretch. If you are self-employed with variable income, if you have young children and expect childcare costs to change, if your job is in an industry with frequent layoffs, or if you have any health issues that might affect your ability to work, staying well below 28 percent gives you a safety cushion. The guideline exists for a reason — it reflects what most households can sustain through life changes.
Frequently Asked Questions
What if I earn $40,000 per year but my spouse earns $50,000?
Most lenders will count both incomes if you are both on the mortgage. Your combined gross monthly income is $7,500, so 28 percent is $2,100. If only one of you is on the loan, only that person's income counts. Discuss with your lender which approach makes sense for your situation.
Does the 28 percent rule include property taxes and insurance?
Yes. When lenders calculate your housing expense ratio, they include your mortgage payment, property taxes, homeowners insurance, and mortgage insurance if applicable. These costs can easily add $300 to $500 per month to your payment, so get a full estimate before deciding what price house to pursue.
Can I afford a house if my payment would be 35 percent of my income?
Technically, yes — some lenders will approve it. But it leaves very little room for other expenses, emergencies, or changes in your life. Most financial advisors recommend staying at or below 28 percent to keep your finances stable. If 35 percent is what you are approved for, it usually means you need to look at less expensive houses or save a larger down payment.
What if I have a large down payment — does that change the 28 percent rule?
A large down payment lowers your monthly payment and may help you may have access to for a better interest rate, but the 28 percent guideline still applies to what you can afford to pay each month. A bigger down payment does not change the rule; it just makes it easier to stay within it.
Should I use a mortgage calculator or talk to a lender?
Use both. Online calculators give you a rough idea of what you might afford based on the 28/36 rule. But a lender can give you an actual pre-approval based on your specific income, debts, credit score, and the interest rates available to you right now. Pre-approval is free and does not commit you to anything.