The 28/36 rule is the standard lenders use to decide how much to lend you
Most mortgage lenders follow a two-part rule: your monthly mortgage payment should not exceed 28 percent of your gross monthly income, and your total monthly debt payments—including the mortgage, car loans, credit cards, and student loans—should not exceed 36 percent of your gross monthly income.
These percentages come from decades of lending data. Lenders found that borrowers who stay within these bounds are less likely to default. The 28 percent figure is sometimes called your "housing ratio" or "front-end ratio," and the 36 percent figure is your "debt-to-income ratio" or "back-end ratio."
Neither of these numbers is a law. They are guidelines that most conventional lenders follow, and they shape how much a lender will offer you. Some lenders are stricter; some are looser. But if you understand these two numbers, you understand how a lender thinks about your application.
Key Takeaways
- The 28 percent rule means your monthly mortgage payment should not exceed 28 percent of your gross monthly income before taxes.
- The 36 percent rule means all your monthly debt payments combined should not exceed 36 percent of your gross monthly income.
- Lenders use these ratios to decide how much money to lend you, not to decide what you can actually afford to pay.
- Your personal comfort with debt and your savings cushion matter more than these percentages once you own the home.
How the 28 percent rule works in practice
If you earn $60,000 per year, your gross monthly income is $5,000. Twenty-eight percent of that is $1,400. That means a lender will typically approve you for a mortgage payment—principal, interest, property taxes, homeowners insurance, and mortgage insurance if you put down less than 20 percent—of up to $1,400 per month.
The actual loan amount depends on interest rates and the length of the loan. At a 7 percent interest rate on a 30-year mortgage, a $1,400 monthly payment covers roughly a $200,000 loan. At a 5 percent rate, it covers roughly a $260,000 loan. But the percentage stays the same: the lender is checking that your payment does not exceed 28 percent of your income.
This rule assumes you have no other debts. If you do, the 36 percent rule becomes the tighter constraint.
How the 36 percent rule constrains you if you carry other debt
If you earn $5,000 per month and you already pay $800 toward a car loan and $200 toward credit cards, your existing debt is $1,000 per month. Thirty-six percent of $5,000 is $1,800. That means your mortgage payment can be at most $1,800 minus $1,000, or $800 per month—even though the 28 percent rule would allow $1,400.
In this scenario, the 36 percent rule is the limiting factor. This is why lenders ask about all your debts during the application process. A large car payment or student loan can shrink the mortgage amount you are approved for, even if your income is high.
The fastest way to increase your borrowing power is to pay down other debts before you apply for a mortgage. Paying off a $300 car payment, for example, frees up $300 of your 36 percent allowance for a larger mortgage.
Why lenders use these percentages, and why they are not the same as affordability
These ratios exist because they predict default risk. Lenders have found that borrowers who spend more than 28 percent of income on housing are statistically more likely to miss payments. The 36 percent figure accounts for the fact that people have other obligations—food, utilities, childcare, medical bills—that are not captured in the debt column.
But these percentages do not account for your personal situation. A person with $50,000 in savings can comfortably carry a higher mortgage payment than someone with $5,000 in savings, even if both earn the same income. A person with stable, predictable income can carry more debt than someone whose income fluctuates. A person with no dependents has different needs than a parent of three.
The 28/36 rule is a floor for lenders, not a ceiling for you. Just because a lender will approve you for a $1,400 payment does not mean you should take it. Many financial advisors suggest aiming for 20 to 25 percent of gross income instead, which leaves more room for emergencies and other goals.
What happens if you exceed these percentages
If your mortgage payment would exceed 28 percent of your income, most lenders will not approve you unless you have significant compensating factors. These might include a large down payment, substantial savings, or a co-borrower with strong income.
Some government-backed loans—FHA loans, VA loans, USDA loans—have slightly different rules. An FHA loan, for example, may allow up to 31 percent for housing and 43 percent for total debt under certain conditions. But the principle is the same: the lender is checking that your debt load is manageable relative to your income.
If you are denied because of these ratios, your options are to increase your income, decrease your other debts, save a larger down payment, or look at less expensive homes.
How to calculate your own housing ratio
Start with your gross monthly income. This is what you earn before taxes, not your take-home pay. If you are salaried, divide your annual salary by 12. If you are self-employed or your income varies, lenders typically average the last two years of tax returns.
Multiply that number by 0.28. That is the maximum monthly mortgage payment a lender will typically approve. Multiply your gross income by 0.36 to find your total debt ceiling. Subtract all your other monthly debt payments from that number. The result is the maximum mortgage payment you could be approved for under the 36 percent rule.
Whichever number is lower—the 28 percent figure or the 36 percent figure minus your other debts—is roughly what a lender will approve you for. This is not a may provide; it is a starting point for a conversation with a lender.
When you might want to stay below these percentages
Many people who can afford a mortgage payment under the 28/36 rule choose to spend less. A common alternative is the 20/28 rule: keep your mortgage payment to 20 percent of gross income and your total debt to 28 percent. This leaves more breathing room for emergencies, home repairs, and other financial goals.
Others aim for 25 percent of gross income on housing. The lower your percentage, the more financial flexibility you have. If your mortgage is 20 percent of income instead of 28 percent, you have 8 percent more income available for savings, childcare, medical bills, or anything else that matters to you.
The right percentage depends on your situation: how stable your income is, how much you have saved, whether you have dependents, and what other financial goals you are working toward. A lender's approval is not the same as a personal recommendation.
Frequently Asked Questions
What if my income is irregular or I am self-employed?
Lenders typically average your income over the last two years using tax returns. If you have been self-employed for less than two years, some lenders will use one year; others will not lend to you yet. Showing consistent or growing income makes approval easier.
Does the 28 percent include property taxes and insurance?
Yes. The 28 percent rule covers your entire monthly housing payment: principal and interest on the loan, property taxes, homeowners insurance, and mortgage insurance if applicable. It does not include utilities, maintenance, or HOA fees.
Can I get approved if I exceed the 28 percent rule?
Some lenders will approve you if you have compensating factors: a large down payment, substantial savings, excellent credit, or a co-borrower with strong income. Government-backed loans sometimes allow higher ratios. But most conventional lenders stick to the 28 percent guideline.
Should I aim for the maximum a lender will approve?
No. A lender approves you based on risk, not on what you can comfortably afford. Many financial advisors suggest staying at 20 to 25 percent of gross income instead, which gives you more cushion for emergencies and other expenses.
How do student loans affect my mortgage approval?
Student loans count as debt in the 36 percent calculation. If you are on an income-driven repayment plan, lenders use your actual monthly payment. If you are in deferment or forbearance, some lenders calculate a payment based on the loan balance, which can reduce your mortgage approval amount.