The 28/36 rule, and why it overstates what you can afford

The rule says housing should take at most 28% of your monthly income and total debt at most 36%. It is repeated everywhere, it is genuinely useful to lenders, and it has one structural flaw: both percentages apply to gross income — money you never actually receive.

Where it came from

The ratios come from conventional mortgage underwriting, where they served as a rule of thumb for the risk of default. They were never designed to answer "what can I comfortably live with." They answer "at what point does this loan become risky for the lender," which is a related but different question, and the two have drifted apart as taxes, insurance and healthcare have taken a larger share of pay.

They also predate the modern escrow burden. A rule calibrated when insurance was cheap and property taxes were lower does not automatically transfer to a market where a Florida homeowner pays over $8,471 a year to insure a house.

The gross income problem

This is the whole argument in one line: you cannot pay a mortgage with money that was withheld before you saw it.

On a $100,000 salary, gross monthly income is about $8,333. Take-home — after federal tax, Social Security and Medicare, state tax, a typical retirement contribution and health premiums — lands between $5,363 and $6,068 depending on your state. Applying 28% to the larger number produces a payment budget 30–40% higher than applying the same percentage to what actually arrives.

The rule is not lying. It is measuring something you cannot spend.

What it produces in practice

Run the rule honestly on that $100,000 salary and it yields about $320,000. Buy at that price and your real all-in monthly cost — principal, interest, actual state property tax, actual insurance, PMI and maintenance — is roughly $2,746 a month, which is 48% of your take-home pay.

Nearly half of your net income committed to one line item, for thirty years, with no allowance for a repair, is not a budget. It is a bet that nothing changes.

The part nobody mentions: lenders go far past 36%

If 28/36 sounds conservative, understand that it is the polite version. Qualified Mortgage rules and the major automated underwriting systems routinely approve total debt-to-income ratios in the 43–50% range. Plenty of borrowers are approved well beyond what the rule of thumb suggests.

So when a lender's calculator quotes you the 28/36 number, it is showing you a restrained figure and holding a larger one in reserve. "Approved for" and "can afford" are different claims, and only one of them is about your life.

What the rule still gets right

Two things, and they are worth keeping. First, the idea of a back-end ratio — that total debt, not just housing, is what determines strain — is correct and important. A mortgage that fits perfectly next to a $700 car payment is a different proposition than the same mortgage alone.

Second, the gap between the front-end and back-end numbers is where existing debt starts to bite. Below that gap, paying off a small loan does not change what you can buy at all. Above it, every payment costs you real purchasing power. Knowing which side you are on tells you whether clearing a debt before applying is worth doing.

A better rule

Use 25% of take-home pay for all housing costs combined — principal, interest, property tax, insurance, PMI, HOA dues and a maintenance reserve of about 1% of the home's value per year. Cap housing plus every other debt payment at 36% of take-home rather than gross.

That is the rule this site's calculator implements, and it is adjustable, because 25% is a default rather than a law. Somewhere between 20% and 30% of net is a defensible range depending on job security, whether one income or two supports the payment, and how much other debt you carry. Above 30% of take-home, most definitions of house-poor apply.

The rule you choose matters less than the income you apply it to. Apply any percentage to gross and you are budgeting with money that belongs to the government.

Run your own numbers →