How Much House Can I Afford? The 28/36 Rule Explained
Before house hunting, know your real budget. Here's the formula lenders actually use — and how your existing debt can quietly shrink your buying power.
Most lenders use the 28/36 rule: housing costs shouldn't exceed 28% of gross monthly income, and total debt (including housing) shouldn't exceed 36%. On an $85,000 salary, this typically supports a home price around $280,000-$340,000, depending on rate, taxes, and down payment.
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The 28/36 Rule Explained
28% Rule: Total housing payment (principal, interest, taxes, insurance — known as PITI) shouldn't exceed 28% of gross monthly income.
36% Rule: Total monthly debt payments, including housing, shouldn't exceed 36% of gross monthly income.
Why Existing Debt Matters So Much
If you have significant car loans, student loans, or credit card payments, the 36% total-debt limit often becomes the binding constraint — pulling your home-buying budget below what the 28% housing-only rule alone would suggest.
Worked Example
$85,000/year salary = $7,083/month gross income.
28% rule: max housing payment = $1,983/month
36% rule: max total debt = $2,550/month
If you have $400/month in other debt, your effective housing budget caps at $2,150/month (36% rule) — lower than the $1,983 from the 28% rule alone in this case, the 28% rule remains binding. But with $800/month in other debt, the 36% rule would cap housing at $1,750 — now more restrictive than 28%.
Beyond the Lender Math
Lenders may approve you for the maximum under these rules, but many financial advisors suggest staying comfortably under these limits, especially accounting for maintenance, utilities, and lifestyle costs not captured in PITI.
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