Understanding the 28/36 Rule for Buying a Home

Lynn Martelli
Lynn Martelli


During the search for a new home, prospective buyers often find themselves pondering the crucial question: “What is the maximum amount I can comfortably spend on purchasing a house?” While it may appear to be a straightforward matter, the reality is that the figure rarely aligns with the lending criteria of banks and other financial institutions. These entities frequently employ the 28/36 rule, a formula designed to assess a homebuyer’s affordability.

What is the 28/36 rule?

The 28/36 rule establishes guidelines for managing your finances, specifically regarding housing costs and overall debt. According to this rule, you should allocate no more than 28% of your monthly income towards housing expenses, and no more than 36% towards all of your combined debts, including housing costs. Housing costs typically encompass Principal, Interest, Taxes, and Insurance (PITI). This rule serves as a general benchmark used by most lenders to assess borrowers’ ability to handle their financial obligations. However, it’s important to note that the 28/36 rule is not a legal requirement but rather a helpful tool. Some lenders may permit a Debt-to-Income (DTI) ratio of up to 45% for conventional loans, allowing for greater flexibility.

The 28/36 rule indicates what we know as the front-end and back-end ratios on a mortgage:

  • Front-end ratio (28%): The front-end ratio is the maximum percentage of net monthly income you should spend on housing.
  • Back-end ratio (36%): The back-end ratio is the maximum percentage of net monthly income you should spend on your debts, including housing. This is also known as the debt-to-income ratio.

Understanding the 28/36 rule as a potential home buyer

Lenders employ various criteria to assess loan applications. Among these, the credit score stands as a significant determining factor. While lenders typically expect a credit score within a specific range, it does not singularly dictate their decision. They also evaluate income and debt-to-income ratio. By considering these factors, lenders make informed judgments on loan approvals.

The 28/36 rule is an important consideration for lenders when evaluating a borrower’s financial situation. This rule helps determine the amount of debt a borrower can responsibly assume based on their income, existing debts, and financial obligations. Its purpose is to ensure that individuals do not take on debt loads that exceed their capacity to repay, reducing the risk of default.

The 28/36 rule is a model that lenders use to iron out the financing requirements. Occasionally, lenders may vary these factors based on credit score, allowing borrowers with high credit scores to get loans even with slightly higher DTI ratios.

Special Considerations

The 28/36 rule is a standard one that most lenders apply before approving any credit, so borrowers should be aware of the rule before applying for any kind of loan. Lenders do credit checks for every credit application they receive. These hard inquiries show up on your credit report. Having multiple inquiries over a short time can affect your credit score negatively and may affect your chance of getting a loan in the future.

What is included in housing costs?

Lenders will usually include your monthly mortgage payment, homeowner insurance, property taxes, and homeowner’s association fees (if any) in your housing costs. Some lenders may include your utilities, too, but this would typically be categorized as contributions to your debts.

How is the Debt-to-Income Ratio calculated?

Your debt-to-income ratio is determined by dividing your total monthly debt payments by your net monthly income. These debt payments encompass your mortgage, vehicle loan, as well as payments towards credit cards, student loans, personal loans, and home equity loans.


Every lender has specific criteria regarding housing debt and total debt as part of their financing process. This process ultimately determines whether a borrower qualifies for a loan. To meet the 28/36 rule, your household costs (primarily rent or mortgage payments) should not exceed 28% of your gross income, and your total debt payments should not exceed 36% of your income. If you do not meet these criteria, it may be time to explore strategies for reducing your debts in a timely manner.

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