The 28/36 Rule Explained
Two percentages decide most mortgage approvals. Here is what the front-end and back-end ratios measure, where the numbers come from, and when lenders bend them.
The 28/36 rule caps housing costs at 28 percent of gross income and total debts at 36 percent. Conventional, FHA, and VA programs each set their own versions, and strong credit or big reserves can stretch them.
Front-end: the housing ratio
Divide your total monthly housing cost by gross monthly income. Housing cost means PITI: principal, interest, property taxes, and homeowner insurance, plus HOA dues and mortgage insurance where they apply. The classic ceiling is 28 percent.
On $8,000 monthly income, the ceiling is $2,240 for everything housing. If taxes and insurance already take $600, only $1,640 remains for the loan payment, which is why high-tax areas shrink buying power.
Back-end: the debt ratio
Add minimum payments on all debts: car loans, student loans, credit cards, plus the housing cost. Divide by gross income. The classic ceiling is 36 percent.
This ratio is where car payments quietly kill home purchases. A $600 car payment on $8,000 income eats 7.5 points of the 36, leaving far less room for housing. Paying off installment debt before applying is often the fastest way to raise your max price.
When lenders allow more
FHA allows up to about 31/43, and VA has no formal front-end cap with a 41 percent back-end guideline. Conventional loans with strong credit can stretch toward 45 to 50 percent back-end through automated underwriting.
Stretching ratios is permission, not advice. Just because a lender allows 45 percent debt-to-income does not mean the payment leaves room for savings, maintenance, and life. Many buyers set a personal ceiling below the lender's.
Skip the arithmetic
See which ratio binds you with the free home affordability calculator.
28/36 rule questions
What is a good debt-to-income ratio for a mortgage?
Under 36 percent gives the widest choice of loans and rates. Between 36 and 43 percent you still qualify for qualified mortgages. Above 43 percent, options narrow to programs with compensating factors, and the payment itself may be uncomfortable regardless of approval.
Do lenders use gross or net income?
Lenders use gross monthly income because it is verifiable from pay stubs and tax returns. This flatters affordability a bit, since taxes take a real bite. Budget your actual payment against take-home pay, not the gross figure the lender used.