The 28/36 rule is the standard benchmark lenders use
Most mortgage lenders follow the 28/36 rule when deciding how much to lend you. The rule says your housing costs (mortgage payment, property taxes, homeowners insurance, and HOA fees if applicable) should not exceed 28 percent of your gross monthly income. Your total debt payments—including the mortgage, car loans, credit cards, and student loans—should not exceed 36 percent of gross monthly income.
These are not hard limits. Lenders may approve you above 28 percent if you have a strong credit score, a large down payment, or low other debts. Some will go as high as 43 percent of gross income for housing alone if your credit and savings are solid. But 28 percent is the threshold most lenders start with, and staying at or below it gives you the most options when shopping for a loan.
The rule exists because it reflects what lenders have learned about default risk. People who spend more than 28 to 36 percent of their income on housing and debt are statistically more likely to miss payments when an emergency hits—a job loss, a medical bill, a car repair.
Key Takeaways
- The 28/36 rule means your housing payment should be no more than 28 percent of your gross monthly income, and all debt payments combined should not exceed 36 percent.
- Lenders use this rule to decide how much they will lend, but individual lenders vary—some approve higher percentages if your credit and savings are strong.
- Staying below 28 percent gives you breathing room for emergencies and lets you save money outside of your mortgage payment.
- Your actual comfortable mortgage percentage depends on your job stability, other debts, local cost of living, and how much you want to save each month.
How to calculate your own 28 percent threshold
Start with your gross monthly income—the amount you earn before taxes, not your take-home pay. If you earn $60,000 per year, your gross monthly income is $5,000. Multiply that by 0.28. In this example, 28 percent of $5,000 is $1,400. That is the maximum housing payment a lender would typically approve.
Your housing payment includes the mortgage principal and interest, property taxes, homeowners insurance, and any HOA or condo fees. It does not include utilities, maintenance, or repairs. If your property taxes and insurance are high in your area, they eat into the amount you can borrow for the actual mortgage itself.
To find what loan amount that payment translates to, you need to know your interest rate and loan term. A mortgage calculator (available free from most banks and from sites like Bankrate or the Consumer Financial Protection Bureau) will show you the loan amount you can afford at your local interest rates. The lower your interest rate, the larger the loan you can carry at the same monthly payment.
Why some people can go higher than 28 percent
If you have a credit score above 740, a down payment of 20 percent or more, and very little other debt, lenders may approve you for a mortgage that is 30, 32, or even 35 percent of your gross income. They are betting that your financial discipline and cushion make you a low-risk borrower.
However, approval is not the same as comfort. Just because a lender will lend you $400,000 does not mean you should borrow it. If your mortgage takes up 35 percent of your income, you have less room to handle a job interruption, a medical emergency, or a major home repair. You also have less money to put toward retirement savings, college funds, or other goals.
The people who report the most financial stress are often those who borrowed the maximum they were approved for. They have no margin for error.
What percentage feels sustainable depends on your situation
Your job stability matters. If you work in a field with frequent layoffs or contract work, staying well below 28 percent—perhaps at 20 to 24 percent—gives you a safety net. If you have a stable government or corporate job with low turnover, you can afford to be closer to 28 percent.
Your other debts matter too. If you are still paying off student loans or a car, those payments count toward your 36 percent total debt ceiling. A person with $300 in car payments and $200 in student loans has only $500 left of their 36 percent budget for a mortgage. Someone with no other debts can use the full 36 percent ceiling for housing if they choose.
Your local cost of living also shifts what is realistic. In areas where homes are expensive relative to local incomes, many people end up at 30 to 35 percent just to own anything. In lower-cost areas, 20 to 25 percent may be the norm. Neither is wrong—it depends on whether you can still save money and handle emergencies.
The difference between what you can afford and what you should borrow
Lenders approve based on income and debt ratios. But your own budget should also account for what you want your life to look like. If you want to save 15 percent of your income for retirement, take a vacation each year, and build an emergency fund, a mortgage that takes 28 percent of your income may leave you stretched.
A useful exercise: write down your gross monthly income, subtract your target mortgage payment, then subtract taxes (roughly 20 to 25 percent of gross income), then subtract all other debts and expenses. What is left? Is it enough to save, to handle a $2,000 car repair, to cover a medical deductible? If the answer is no, your mortgage is too high even if a lender approved it.
Many financial advisors suggest aiming for 20 to 25 percent of gross income for housing if you want to build wealth and have financial flexibility. That leaves more room for savings, emergencies, and the life you actually want to live.
How property taxes and insurance affect your real borrowing power
The 28 percent rule includes property taxes and insurance, not just the mortgage payment itself. In some states and counties, property taxes are low—1 percent of home value per year or less. In others, they run 1.5 to 2 percent per year. That difference is huge.
If you buy a $300,000 home in a low-tax state, property taxes might be $3,000 per year, or $250 per month. In a high-tax state, they could be $6,000 per year, or $500 per month. That $250 difference comes straight out of the amount you can borrow for the actual mortgage payment.
Homeowners insurance varies by location and home age too. Older homes, homes in flood zones, and homes in areas with high theft or weather risk cost more to insure. Before you decide how much house you can afford, research property taxes and insurance costs in the specific neighborhood you are considering. They are not optional, and they are not small.
Frequently Asked Questions
Can I get a mortgage if my housing costs are above 28 percent?
Yes. Many lenders approve mortgages where housing costs are 30 to 43 percent of gross income, depending on your credit score, down payment, and other debts. But higher percentages mean less financial flexibility and higher risk if you lose income or face an emergency.
Does the 28/36 rule include property taxes and insurance?
Yes. The 28 percent housing ratio includes your mortgage payment, property taxes, homeowners insurance, and HOA fees. It does not include utilities, maintenance, or repairs. Check your area's tax rates and insurance costs before deciding how much to borrow.
What if I have a variable income or work freelance?
Lenders typically average your income over the past two years for self-employed or variable-income borrowers. Some require a larger down payment or charge a slightly higher interest rate. Calculate your mortgage based on a conservative estimate of your average income, not your best year.
Should I borrow the maximum a lender approves?
No. Approval reflects lender risk tolerance, not your financial comfort. Borrowing the maximum often leaves no room for emergencies, savings, or life changes. Many people find 20 to 25 percent of income more sustainable than the 28 percent lenders allow.