What is the 28/36 rule for home affordability?

The 28/36 rule says your monthly housing costs (mortgage principal, interest, property taxes, and insurance — PITI) should not exceed 28% of gross monthly income, and your total monthly debt payments (housing + car loans + student loans + credit cards) should not exceed 36%. The front-end ratio (28%) governs housing alone; the back-end ratio (36%) governs all debt. Most buyers qualify under the front-end rule but are constrained by the back-end ratio if they carry other debt.

How does debt-to-income ratio affect how much home I can afford?

DTI (debt-to-income ratio) is total monthly debt payments ÷ gross monthly income. Conventional loans allow up to 43–45% DTI; FHA loans allow up to 50% with compensating factors. If you earn $8,000/month and have $400/month in existing debt (car loan, student loan), you have $3,440 available for housing at 43% DTI (0.43 × $8,000 − $400 = $3,040 max PITI). The existing debt effectively reduces your home buying power by 3–4× the monthly payment amount.

What income do lenders use to calculate affordability?

Lenders use gross income (before taxes) from all qualifying sources: W-2 salary, self-employment net income (2-year average from tax returns), rental income (typically 75% of gross rent to account for vacancies), pension and Social Security income, and regular investment distributions. Bonuses and overtime are included if received for 2+ consecutive years and expected to continue. Commission income requires 2 years of history. Part-time income requires 2 years of consistent earnings.

What is the 3x–5x income rule for home buying?

A rule of thumb: home price should be no more than 3–5× your annual gross income. At $90,000/year, this suggests $270,000–$450,000. The lower end (3×) applies in high-rate environments or when you carry other debt. The upper end (5×) applies in low-rate environments or high-cost cities where the ratio is structurally stretched. This rule is a quick screen, not a lender standard — your actual buying power depends on interest rate, down payment size, property taxes in your area, and existing debt load.

How does the down payment size affect home affordability?

A larger down payment improves affordability in three ways: it reduces the loan balance (lower monthly payment), it may eliminate PMI (saving $100–$300/month on a typical loan), and it lowers the DTI since the payment is smaller. On a $400,000 home: 5% down ($20,000) at 7% = $2,583/month PITI. 20% down ($80,000) at 7% = $2,129/month PITI — $454 less per month, plus no PMI. The 20% down scenario also avoids $100–$250/month in PMI, saving $554–$704/month total versus 5% down.

How to Calculate Home Affordability: The 4 Rules Lenders Use

Home affordability is calculated using four ratios: the 28% front-end rule, the 36% back-end rule, the 43% DTI ceiling, and the 3x–5x income rule. Most buyers are constrained by their back-end DTI, not their income. A worked example shows exactly what you can borrow at $90,000 gross income with $500/month in existing debt.

Home affordability is calculated using four ratios: the 28% front-end rule (housing costs ≤ 28% of gross monthly income), the 36% back-end rule (all debt ≤ 36% of gross income), the 43% DTI ceiling for conventional loans, and the 3×–5× income rule for a quick price sanity check. Most buyers qualify under the front-end rule but are constrained by their back-end DTI when they carry car loans, student loans, or credit card minimums.

How to calculate home affordability

The calculation works in four steps. Each one answers a different question about your purchasing power.

Most buyers are constrained by the back-end ratio (36–43%), not the front-end rule (28%).

Step 1 — Maximum housing payment (front-end ratio)

Multiply your gross monthly income by 0.28. The result is the maximum allowable PITI — principal, interest, property taxes, and insurance.

Gross monthly income	Max PITI (28%)
$5,000	$1,400
$7,500	$2,100
$10,000	$2,800
$12,500	$3,500

Step 2 — Maximum all-debt payment (back-end ratio)

Multiply gross monthly income by 0.36 (or 0.43 for conventional loans at the DTI ceiling). Subtract all existing monthly debt payments. The remainder is your maximum housing payment under the back-end rule.

Back-end housing budget = (Gross income × 0.43) − Existing monthly debt

At $7,500/month gross income with $600/month in existing debt (car + student loan): (7,500 × 0.43) − 600 = 3,225 − 600 = $2,625 maximum PITI.

Compare this to the front-end limit of $2,100. The binding constraint is the lower number — $2,100 in this case. Your existing debt has not actually reduced your housing budget here because the front-end limit is tighter. If the existing debt were $1,200/month, the back-end result ($2,025) would become the binding constraint.

Step 3 — Convert maximum PITI to home price

A $2,100/month PITI budget does not translate directly to a purchase price — you need to account for property taxes and insurance first. A typical allocation:

Component	Approximate monthly cost
Property taxes	$150–$400 (varies by state/county)
Homeowner's insurance	$80–$150
PMI (if <20% down)	$100–$250
Available for principal + interest	$1,300–$1,770

With $1,500/month available for principal and interest at 7% for 30 years, the loan calculator formula gives a maximum loan of approximately $225,000. Add your down payment to find your maximum purchase price.

Step 4 — The 3×–5× income sanity check

Home price should fall between 3× and 5× gross annual income as a quick screen. At $90,000/year gross, this is $270,000–$450,000. The lower end (3×) applies in high-rate environments or when you carry debt. The upper end (5×) applies in low-rate periods. In high cost-of-living markets (California, NYC, Seattle), buyers routinely stretch to 5×–7× — but this requires minimal other debt and stable income.

Worked example: $90,000 income, $500/month in existing debt

Calculation	Result
Gross monthly income	$7,500
Front-end max PITI (28%)	$2,100
Back-end max all-debt (43%)	$3,225
Subtract existing debt ($500/mo)	$2,725 available for housing
Binding constraint (lower number)	$2,100 (front-end wins)
Subtract taxes + insurance + PMI ($350/mo est.)	$1,750 for principal + interest
Maximum loan at 7%, 30 years	$263,000
With 10% down ($29,000)	~$292,000 maximum purchase price

Now increase the existing debt to $1,400/month (aggressive student loan + car): (7,500 × 0.43) − 1,400 = $1,825 available for housing. This is now lower than the $2,100 front-end limit — so the back-end ratio becomes the binding constraint. Maximum loan drops to roughly $220,000. The $900 increase in monthly debt reduced buying power by approximately $70,000 — roughly $78 of buying power per dollar of monthly debt payment.

What lenders actually look at beyond the ratios

The DTI ratios are necessary but not sufficient. Lenders also evaluate:

Credit score — a 760+ score qualifies for the best rates; below 620 limits you to FHA or non-QM loans. A 0.5% rate difference on a $250,000 loan is $69/month — $24,840 over 30 years.
Cash reserves — conventional lenders typically require 2 months of PITI in reserve after closing. Jumbo loans require 6–12 months. Reserves signal stability and reduce default risk.
Employment stability — W-2 employees need 2 years at the same employer or in the same field. Self-employed borrowers need 2 years of tax returns showing stable or growing income. Recent job changes, gaps, or industry switches can delay approval.
Down payment source — funds must be seasoned (in your account 60+ days) or from a documented gift. Large recent deposits require explanation and documentation.

Key takeaways

The front-end ratio (28%) and back-end ratio (36–43%) are separate calculations — use both and take the lower result. Existing debt constrains the back-end ratio; income constrains both.
Every $100/month of existing debt reduces buying power by approximately $8,000–$10,000. Paying off a $400/month car loan before applying can increase your maximum loan by $32,000–$40,000.
Property taxes and insurance consume $250–$600/month of your PITI budget before one dollar goes to principal. Know your target county's tax rate before calculating how much home your PITI budget can support.
A 20% down payment eliminates PMI ($100–$250/month), which directly increases the loan size your PITI budget can support by $15,000–$40,000 at current rates.

To run your exact numbers: use the Home Affordability Calculator to model your DTI with your specific income, debts, and down payment, and the Mortgage Payment Calculator to find the loan size a given PITI budget supports at today's rates. For related reading, see how much house you can afford by salary and how much down payment you actually need.