Wondering how much house you can afford? You’re not alone. With soaring home prices and rising interest rates, it’s more important than ever to understand how to budget realistically when buying a home. One proven strategy? The 28/36 rule — a trusted guideline used by mortgage lenders to assess home affordability.
What is the 28/36 Rule?
The 28/36 rule is a home affordability benchmark that helps buyers and lenders determine safe spending limits when financing a home. Here’s how it works:
-
28% Front-End Ratio: No more than 28% of your gross monthly income should go toward housing expenses. This includes your mortgage principal, interest, property taxes, and homeowner’s insurance (also known as PITI).
-
36% Back-End Ratio: No more than 36% of your gross monthly income should be used to cover all monthly debt obligations, including housing, credit cards, student loans, car loans, and other debt.
This method helps ensure buyers aren’t overextending themselves financially—an important consideration for lenders required by law to evaluate a borrower’s ability to repay.
💡 Pro Tip: While many lenders stick to this rule for conventional loans, some may allow higher debt-to-income (DTI) ratios—especially for government-backed loans like FHA, VA, or USDA.
Real-Life Example: Affording a $500,000 Home
Let’s say you’re purchasing a home for $500,000 with a 20% down payment and a 30-year fixed-rate mortgage at 7%. Your estimated monthly mortgage payment (principal + interest) would be around $2,210. Add another $400 for property taxes and insurance, and your total monthly housing cost would be $2,610.
To stay within the 28% rule:
-
You’d need to earn at least $11,666/month or roughly $140,000/year in gross income.
To stay within the 36% rule:
-
Your total monthly debt (including the $2,610 mortgage) should be no more than $4,200.
Is the 28/36 Rule Still Realistic in 2025?
With today’s housing market, many buyers are finding it hard to stay within these limits. And while the rule remains a useful starting point, it doesn’t factor in individual circumstances like credit score, job security, or lifestyle costs.
“Given today’s high home prices and high mortgage rates, prospective homebuyers might be dismissive of the rule and think it is a relic of the past. But if you can’t align with those guidelines, or aren’t even close, consider it a warning that you’re carrying too much debt or buying too much house.”
— Greg McBride, CFA, Chief Financial Analyst at Bankrate
How to Improve Your Debt-to-Income (DTI) Ratio
Not quite fitting into the 28/36 framework? You’re not out of luck. Here are a few actionable ways to improve your affordability:
-
Pay down existing debt (credit cards, personal loans, car loans)
-
Increase your income before buying, or wait until a raise or promotion
-
Consider more affordable housing options like condos or townhomes
-
Explore down payment assistance programs in your state or city
-
Make a larger down payment to reduce your monthly loan amount
And remember, a trusted local real estate agent can help you find homes that align with your financial goals—without sacrificing your quality of life.
Frequently Asked Questions (FAQs)
Q: How much house can I afford with a $150,000 salary?
A: Using the 28/36 rule, you should aim to spend no more than $3,500/month on housing. Your final mortgage affordability will depend on your interest rate, credit score, and other financial obligations.
Q: Is the 28/36 rule based on income before or after taxes?
A: It’s based on your gross income—that’s your income before taxes are taken out.
Q: Can I exceed the 36% rule?
A: Yes, some lenders allow higher DTIs. However, keep in mind that higher debt burdens can impact your ability to save, invest, or manage emergency expenses.
Final Thoughts: Know Your Numbers Before You Buy
Buying a home is one of the biggest financial decisions you’ll ever make. The 28/36 rule is a great starting point to understand how much home you can comfortably afford. If your numbers are close—or outside of these guidelines—don’t panic. There are plenty of ways to make homeownership work for your unique situation.
Need help finding a home that fits your budget and lifestyle?
👉 Contact Global Vanguard International today. We specialize in smart real estate strategies designed to match your financial goals—whether you’re buying in Miami, the Caribbean, or Mexico.
Original article by Jim Probasco. Content originally published by the National Association of REALTORS® and The Pioneer.
