The 28/36 rule, explained
Most lenders use a guideline called the 28/36 rule to determine how much home you can afford. It has two parts:
28% rule: your monthly housing costs (mortgage principal, interest, property taxes, and insurance) should not exceed 28% of your gross monthly income.
36% rule: your total monthly debt payments, including housing plus any car loans, student loans, or credit card minimums, should not exceed 36% of your gross monthly income.
| Rule | Limit | Monthly amount |
|---|---|---|
| 28% housing limit | 28% of $7,083 | $1,983/mo |
| 36% total debt limit | 36% of $7,083 | $2,550/mo |
| Available for housing (after $350 other debts) | 36% limit minus debts | $2,200/mo |
In this example, the binding constraint is the lower of the two numbers — $1,983 from the 28% rule — since it's more restrictive than the $2,200 left over under the 36% rule. Once you know your price range, use the Mortgage Calculator to see what that monthly payment breaks down to in full detail, including taxes and insurance.
How down payment changes your purchasing power
The same monthly budget can afford a meaningfully different home price depending on your down payment, since a larger down payment means a smaller loan and lower monthly principal and interest. For a deeper look at the tradeoffs between 3%, 10%, and 20% down — including PMI costs and break-even analysis — see our guide to how much to put down on a house.
| Down payment | Approx. home price |
|---|---|
| 5% | $295,000 |
| 10% | $310,000 |
| 20% | $345,000 |
Going from 5% to 20% down on the same budget increases your purchasing power by roughly $50,000, largely because you eliminate PMI and reduce the loan amount needing to fit inside your payment limit.
New to buying a home?
If this is your first home purchase, our first-time homebuyer guide walks through everything from getting pre-approved to closing day — including what to watch for, how much to budget beyond the purchase price, and what questions to ask your lender.