The standard rule: 28 percent of gross income
Most lenders use the 28/36 rule to decide how much house payment you can afford. The first number means your monthly housing payment — mortgage, property tax, homeowners insurance, and HOA fees if you have them — should not exceed 28 percent of your gross monthly income. That is income before taxes and deductions.
This is not a law. It is a lending standard that most banks, credit unions, and mortgage companies follow when they decide whether to approve you. Some lenders are stricter; some will go higher if you have strong credit or a large down payment. But 28 percent is the baseline most will use to calculate your maximum loan amount.
The second number in the 28/36 rule — the 36 — is your total debt ceiling. All your monthly debt payments, including the house payment, should not exceed 36 percent of gross income. That means if you have car loans, student loans, credit card minimums, or other obligations, they count against your housing budget.
Key Takeaways
- The 28/36 rule limits your housing payment to 28 percent of gross monthly income and all debt to 36 percent, though lenders may adjust these thresholds based on credit and down payment size.
- Your housing payment includes the mortgage principal and interest, property tax, homeowners insurance, and HOA fees — not just the loan amount.
- Existing debt like car loans and credit cards reduces the amount you can borrow for a house because they count toward your 36 percent total debt limit.
- A lower house payment than the maximum lenders allow leaves room for maintenance, repairs, and life changes that affect your budget.
- Online mortgage calculators can show you the payment amount for different loan sizes, but a lender's pre-approval letter shows what they will actually lend you based on your full financial picture.
How lenders calculate your maximum house payment
A lender starts with your gross monthly income — the number on your pay stub before withholding, not your take-home pay. If you earn $60,000 a year, that is $5,000 gross per month. Twenty-eight percent of $5,000 is $1,400. That is the ceiling for your total housing payment.
Then the lender subtracts your other debt. If you have a $300 car payment and $150 in credit card minimums, that is $450. Your 36 percent total debt limit is $1,800 (36 percent of $5,000). Subtract the $450 in other debt, and you have $1,350 left for housing. In this case, the 28 percent rule ($1,400) is higher than what your other debt allows ($1,350), so the lender uses $1,350 as your maximum.
The lender then works backward from that $1,350 to find the loan amount. They subtract property tax, homeowners insurance, and any HOA fees — all of which vary by location and property. What is left is available for the mortgage payment itself. A mortgage calculator can show you roughly what loan amount that supports, but only a lender's pre-approval letter tells you what they will actually lend.
What counts as your housing payment
Your housing payment is not just the mortgage. Lenders bundle four things together: principal and interest on the loan, property tax, homeowners insurance, and HOA fees if applicable. This total is sometimes called PITI (principal, interest, tax, insurance) or PITI plus HOA.
Property tax varies sharply by county and state — from under 0.5 percent of home value annually in some states to over 2 percent in others. Homeowners insurance also varies by location, home age, and the insurer. An HOA fee, if your property has one, is a fixed monthly amount set by the association. All three of these are outside your control once you buy, so lenders include them in the payment calculation from the start.
What does not count toward the 28 percent limit: utilities, maintenance, repairs, lawn care, or any other cost of living in the house. The 28 percent rule is about the payment itself, not the total cost of homeownership.
Why the maximum is not the same as what you should pay
Lenders approve you for the maximum you can technically afford to pay each month. That is not the same as the amount that leaves you room to live. A house payment at the 28 percent ceiling leaves little buffer for emergencies, job changes, or the repairs every house eventually needs.
A roof replacement, foundation repair, or major plumbing work can cost thousands. If your house payment is already at the lender's maximum, you have no cushion. Many financial advisors suggest aiming for 20 to 25 percent of gross income instead, which gives you breathing room and reduces the risk that a single repair or income drop will force you into financial strain.
The 28/36 rule is a lending floor, not a personal finance recommendation. It answers what a lender will approve, not what is wise for your situation. Your actual target depends on your job stability, savings, local cost of living, and how much financial stress you can tolerate.
How down payment and credit score affect your maximum
A larger down payment and a higher credit score can push some lenders to approve you for more than the standard 28 percent. If you put down 20 percent instead of 5 percent, the lender's risk is lower, and they may stretch the ratio. Similarly, a credit score above 740 signals lower default risk, and some lenders will go to 30 or 32 percent for borrowers in that range.
Conversely, a lower credit score or a smaller down payment can tighten the ratio. Some lenders will cap you at 25 or 26 percent if your credit is below 620 or if you are putting down less than 3 percent. The 28 percent rule is a standard, but individual lenders adjust it based on risk.
A pre-approval letter from a lender shows the actual amount they will lend you, factoring in your credit, income, debts, and down payment. That letter is more reliable than an online calculator, because it reflects the lender's specific rules and your full financial picture.
Self-employed income and variable earnings
If you are self-employed or your income varies, lenders typically average your earnings over the past two years. Some use the lower of the two years to be conservative. If you earned $50,000 in year one and $70,000 in year two, a lender might use $50,000 or an average of $60,000, depending on their policy.
Bonus income, commission, or seasonal work may be included only if you have a two-year history of receiving it. A lender will not count a bonus you received once. This means your approved house payment may be lower than it would be if you had a fixed salary, even if your actual earnings are higher.
If your income is irregular, bring tax returns, profit-and-loss statements, and bank statements to the pre-approval meeting. The lender will tell you what they can count and what they cannot.
Comparing your payment to local housing costs
The 28 percent rule is national, but housing costs are not. In some markets, 28 percent of income barely covers a modest home; in others, it buys far more. A $1,400 monthly payment supports a $280,000 loan in a low-cost area but might be the payment on a $150,000 home in an expensive city.
If you live in a high-cost area and the 28 percent rule limits you to a payment that does not match local prices, you have a few options: save a larger down payment to reduce the loan amount, look in a different neighborhood or town, or accept that homeownership may not be feasible right now. Some lenders in high-cost areas will stretch to 30 or 32 percent, but that increases your financial risk.
Checking what homes actually cost in your area — not what the rule says you can afford — is a reality check that a calculator cannot provide. A real estate agent or a local lender can tell you what price range your approved amount actually reaches in your market.
Frequently Asked Questions
What if I have no other debt — can I use more than 28 percent for housing?
Some lenders will stretch to 30 or 32 percent if your only debt is the house payment and you have strong credit and a solid down payment. But most stick to 28 percent as a standard. Ask your lender whether they have flexibility; do not assume they do.
Does my student loan affect how much house I can borrow?
Yes. Your student loan payment counts toward the 36 percent total debt limit. If your loan payment is $200 a month, that $200 reduces the amount available for your housing payment. Income-driven repayment plans may lower the monthly payment, which can free up room in your debt budget.
Can I afford a house payment higher than 28 percent if I have savings?
Lenders do not adjust the 28 percent rule based on savings. They look at monthly income and monthly debt. However, if you have substantial savings, you could put down a larger down payment to reduce the loan amount and thus the monthly payment. That is a different strategy than borrowing more.
What happens if my income drops after I buy?
The lender approved you based on your income at the time of purchase. If your income drops later, your payment does not change — your loan is fixed. This is why aiming for 20 to 25 percent instead of the maximum 28 percent gives you a safety margin if your circumstances change.
Is the 28/36 rule the same for all types of loans?
Most conventional mortgages, FHA loans, and VA loans use the 28/36 rule or something close to it. USDA loans have slightly different thresholds. Ask your lender which rule they use, because some will adjust the numbers based on credit score, down payment, or loan type.