Lenders start with two percentages. Here's the 28/36 rule, with real numbers.
Before a lender looks at houses, they look at two percentages. Understanding them tells you your real price range — and keeps you from being "house poor."
Spend no more than 28% of your gross monthly income on housing (the "front-end" ratio), and no more than 36% on all debt payments combined (the "back-end" ratio). Your budget is whichever of those two limits is lower.
Say you earn $90,000 a year — about $7,500 gross per month.
The lower number, $2,100, is your monthly housing budget. From there you can work back to a loan amount and a home price.
That budget isn't just principal and interest. It's PITI: Principal, Interest, property Taxes, and homeowners Insurance — plus HOA dues if your home has them. Leave those out and you'll overshoot what you can comfortably carry.
It's a guideline, not a promise. Lenders also weigh your credit score, down payment, employment history, and cash reserves, and some loan programs allow higher ratios. Just as important: the rule tells you what a lender will allow, not necessarily what will leave you comfortable. Many people deliberately stay below it.
A lending guideline: spend no more than about 28% of your gross monthly income on housing, and no more than about 36% on all debt payments combined.
Estimate your monthly housing budget as 28% of gross monthly income (or 36% of income minus your other debts, whichever is lower), then work backward to a loan and home price. The affordability calculator does this for you.
Yes. The 28% housing figure is meant to cover the full payment — principal, interest, property taxes, and homeowners insurance (PITI), plus HOA dues if any.