Home Affordability Rules: 28/36, 30%, and Which One to Use
The 28/36 Rule
The classic mortgage industry standard. It says:
- Spend no more than 28% of your gross monthly income on housing costs (PITI — principal, interest, taxes, insurance)
- Spend no more than 36% of your gross monthly income on all debt combined (housing + car + student loans + credit cards)
At $8,333/month gross ($100,000/year): max housing = $2,333, max total debt = $3,000.
The problem: It uses gross income, not take-home pay. After taxes, retirement contributions, health insurance, and other deductions, your actual available cash is often 25–35% less than your gross.
The 30% of Net Income Rule
Many financial planners prefer measuring against take-home pay. If your net monthly income is $6,000, your total housing cost should not exceed $1,800/month.
Why this is better: It reflects your actual cash flow. You pay bills with after-tax dollars, not gross income.
The 35/45 Rule (Aggressive)
A more liberal guideline used by some lenders. 35% of gross income on housing, 45% total debt. This is near the maximum most lenders will allow, and it leaves thin margins for error.
The Problem with All These Rules
Every affordability rule uses your mortgage payment as the housing cost. But as we've covered, the mortgage is only 50–70% of your true monthly housing cost. If you apply the 28/36 rule to your full true cost (including taxes, insurance, maintenance), the safe home price drops significantly.
DTI (Debt-to-Income Ratio) Explained
Lenders focus heavily on DTI:
- Front-end DTI: Just housing / gross income. Max 28% (conventional)
- Back-end DTI: All debts / gross income. Max 43% (conventional), up to 50% with compensating factors
- FHA allows up to 57% back-end DTI in some cases
High DTI = approved but risky. Getting approved doesn't mean you're in a healthy financial position.
Educational content. Consult a financial professional for personalized advice.