CalculatorThe 28/36 Rule Explained
The 28/36 rule is the foundation of home affordability. The first figure says your monthly housing payment — principal, interest, taxes, and insurance, or PITI — should stay at or below 28% of your gross (pre-tax) monthly income. The second says your total monthly debt, including that housing payment plus car loans, student loans, and minimum credit-card payments, should stay at or below 36%. Lenders lean on these two ratios, called the front-end and back-end debt-to-income ratios, to decide how large a loan you can responsibly carry.
How Income Determines Your Home Price
Affordability works backward from your paycheck. Start with gross monthly income, apply the 28% housing cap to find your target payment, then subtract estimated property taxes and insurance to isolate how much is left for principal and interest. That remaining amount, combined with the current interest rate and loan term, determines the loan you can support — and adding your down payment gives the maximum home price. A household earning $90,000 a year has roughly $2,100 a month for housing under the 28% rule; at a 6.5% rate that supports a very different price in low-tax Texas than in high-tax New Jersey, which is why local data matters.
Understanding DTI Ratios
Your debt-to-income ratio is the single most important number in mortgage underwriting. The back-end ratio captures every recurring debt, so two people with identical salaries can qualify for very different loan amounts if one carries a $600 car payment and large student loans. Most conventional loans aim for a back-end DTI at or under 36%, but approvals commonly extend to 43–45% with good credit and cash reserves, and FHA loans can stretch to about 50% with strong compensating factors. The practical takeaway: paying down a car loan or credit-card balance before you apply can raise your affordable price more than a modest raise would.
The Impact of Your Down Payment
The down payment is your other big lever. A larger up-front contribution shrinks the loan, which lowers both the monthly payment and the lifetime interest. Cross the 20% threshold on a conventional loan and you also drop private mortgage insurance, which can save hundreds of dollars a month and effectively raise the price you can afford. That said, draining every dollar of savings to reach 20% is not always wise — keeping a healthy emergency fund intact can be the smarter risk decision even if it means a slightly higher payment or a little PMI for a while.
Buy What Fits, Not What You Qualify For
A lender's maximum approval is a ceiling, not a target. Real budgets include maintenance, utilities, HOA dues, and the occasional surprise, none of which appear in a basic qualification formula. Aiming for a payment comfortably below your maximum builds a cushion against rising rates, higher insurance premiums, or a change in income. Use the calculator above to test several scenarios, then explore your state below to factor in local home prices and property taxes before you start shopping.