What this calculator answers

The 28/36 rule is the oldest underwriting heuristic in mortgage lending. It says your housing payment should not exceed 28 percent of your gross monthly income, and your total debt payments (housing plus car, student, credit card, and any other recurring loan) should not exceed 36 percent of gross monthly income. This tool reverse engineers the home price that fits those two limits for your specific income, rate, and existing debts.

How the math works

Start with monthly gross income. Multiply by 0.28 to get the maximum housing payment, including principal, interest, property tax, homeowner insurance, and any HOA dues. Multiply by 0.36 and subtract your existing non-housing debt payments to get a second maximum housing payment based on total debt load. The lower of the two limits is your real ceiling. From that monthly payment, the tool backs out the loan amount using your rate and term, then adds your down payment to arrive at the maximum home price.

When to use it

• You are starting the home search and want a hard upper bound before any agent or lender tells you what you can 'qualify' for, which is almost always more than you should actually spend.
• You are comparing two different markets and want to see how the same income translates to different price ranges at different property tax rates.
• You just got a raise or paid off a car and want to see how much your buying power changed.
• You want to model the effect of a larger down payment on the maximum price you can responsibly afford.

Common mistakes

• Using net (take-home) income instead of gross. The 28/36 rule is built around gross income because lenders underwrite to gross.
• Forgetting to include property tax and insurance in the housing payment. These can add 300 to 800 dollars a month and dramatically shrink the price you can afford.
• Assuming the rule is a target rather than a ceiling. Many financial planners recommend keeping housing closer to 20 to 25 percent of gross income for true comfort.
• Ignoring HOA dues on condos and planned communities, which can run 200 to 800 dollars a month and count against the 28 percent housing limit.

A worked example

Your household gross income is 9,000 dollars a month. The 28 percent housing limit is 2,520 dollars a month. You also have a 450 dollar car payment and 250 dollars in student loan payments, totaling 700 dollars in other debt. The 36 percent total-debt limit is 3,240 dollars, minus 700 dollars in other debt, equals 2,540 dollars for housing. The binding limit is 2,520 dollars. At a 7 percent 30-year rate, with 600 dollars a month going to taxes and insurance, the remaining 1,920 dollars supports a loan of about 288,000 dollars. Add a 50,000 dollar down payment and your maximum responsible home price is around 338,000 dollars.

Frequently asked questions