28/36 Rule Calculator

The 28/36 rule is a simple guideline to quickly assess what housing costs you can afford. It recommends that your monthly housing expenses should be limited to no more than 28 percent of your gross income and your total monthly debt payments should be limited to no more than 36 percent. This calculator converts this rule into an upper limit for housing cost, an upper limit for total debt payment, and if necessary, a rough price range for the house you can afford with that budget.

What is the 28/36 rule?

The 28/36 rule is a guideline used by financial institutions to determine the affordability of mortgage loans for borrowers. It sets two limits based on an applicant's gross income.

A ratio of 28 percent for the front wheels.It's a guideline that says your monthly housing costs should not exceed 28 percent of your gross monthly income. Housing costs include the total monthly amount for principal, interest, taxes and insurance (PITI) plus any homeowners association (HOA) fees.

A backend share of 36 percent.It's a guideline that says the sum of all monthly debts - including housing costs, car loans, student loans and minimum credit card payments - should not exceed 36 percent of your gross monthly income. Financial institutions call this figure your debt-to-income ratio, or DTI for short.

The two sentences are intentionally different to account for existing debt outside of the home. The more other loans you have, the less income is actually available to pay back your mortgage loan, which should be below 28 percent in essence.

Instructions for using this calculator:

Enter your gross income and select if it is an annual or monthly salary. Then enter the monthly amounts for car loans and other financing that can be verified by banks using your credit information. Food costs, utilities and subscriptions are not included. The calculator will instantly show you the maximum allowable percentage of housing expenses (28), the maximum allowable percentage of total debt burden (36) as well as a recommended upper limit on housing costs calculated after deducting existing debts.

If you want a more detailed estimate, there are two options available to you: Enable "Check Housing Costs" to check if the monthly rate entered meets both percentages. Enable "Estimate Property Value" to get an estimation of maximum loan amount and purchase price for housing costs based on mortgage interest rate, term length, and equity stake.

Formulas and examples for the 28/36 rule:

Both of these limits are calculated as a percentage of your gross monthly income.

Assume your gross monthly income is $6,000. The maximum housing expense limit would be $1,680, which is the product of 0.28 and $6,000. The total debt service limit would be $2,160, which is the product of 0.36 and $6,000. If you already have a car loan and student loans that require monthly payments of $400, your maximum housing expense would be $1,760, calculated as $2,160 minus $400. However, this amount is capped at the recommended limit of $1,680 by the 28 percent rule.

Here is what each field means, with the figures from the household above.

How do financial institutions assess the debt to income ratio (DTI)?

The back-end ratio is the actual debt-to-income ratio and an important indicator for financial institutions. It's calculated by adding up monthly debt payments and dividing it by gross income. For example, if you have a $1,200 monthly rent payment, a $200 car loan, a $150 student loan, and credit card payments of $85, your total is $1,635. Dividing that by a monthly salary of $4,000 gives you about 41 percent.

Thirty-six percent is a benchmark that should not be exceeded but also does not represent an absolute limit. Many financial institutions accept up to 43 percent for conventional loans. For borrowers with good conditions, values of up to 45 percent and even 50 percent in some cases can be accepted. The closer the value is to 28/36, the more money remains available for savings, emergencies, and expenses that are not included in this rule.

How much house can you afford with your income?

Because both limits are a percentage of income, they change as your income changes. As your income goes up, so do both limits. In the reference table in the calculator you can see what these amounts are for typical annual salaries at the 28% and 36% levels. For example, with an annual salary of $50,000, the maximum housing expense is about $1,167 per month; with a salary of $100,000 it's about $2,333, and with a salary of $200,000 it's about $4,666.

Important points for correctly applying this rule:

When calculating ratios, use gross income since that is the amount financial institutions will consider when you apply for a loan. However, when creating a budget, use your net income after taxes as the basis. Also note that housing costs are not just principal and interest payments; they include the entire PITI. So property tax and insurance premiums also come out of the 28 percent budget. If you pay off car loans or credit card debt before applying for a mortgage loan, then each dollar in debt reduction can free up more money to spend on housing costs. The home price estimates given here are just starting points; actual results will depend on current interest rates, taxes, insurance premiums and mortgage insurance.

This calculator is for general education and planning purposes only and does not constitute financial advice or a guarantee of loan approval. Financial institutions consider various factors such as creditworthiness, employment status, and assets. Consult with a qualified mortgage professional before making any decisions.