What Is The 28 36 Rule

Often, a lender will approve you for a higher amount than the 28/36 rule suggests. However, just because you can borrow more doesn’t mean you should. Retirees on a fixed income or those with high lifestyle expenses should use the 28/36 rule as a conservative ceiling to ensure their homeownership remains a blessing rather than a burden.

If your ratios are too high, you have two levers to pull:

• Reduce Debt: Pay off high-interest credit cards or car loans to lower your “36%” side.

• Increase Income: Bonuses, commissions, or side-hustle income can be counted if you have a two-year history of receiving them.

• Larger Down Payment: This lowers the loan amount, which directly reduces your monthly PITI.

The rule itself remains the same, but the way “income” is calculated changes. Lenders typically look at the net income (after business expenses) from the last two years of tax returns. Because self-employed income can fluctuate, staying strictly within the 28/36 rule is even more critical to ensure you can handle months where business might be slower.

In markets where home prices have outpaced wage growth, the 28/36 rule can be difficult to meet. Many buyers now find themselves “stretching” to a 30/43 ratio. If you are a first-time homebuyer in a high-cost area, you might need a larger down payment or a co-signer to bring your ratios back in line with what a lender will accept.

Applying this rule helps prevent “house poverty,” where so much of your income goes toward your mortgage that you cannot afford maintenance, emergencies, or life’s other expenses. It provides a safety margin that protects both the lender and your long-term homeownership stability.

Suppose you are buying a $500,000 home with 20% down ($100,000). At an interest rate of 6.5%, your PITI might be approximately $3,100.

• To qualify under the 28% rule, your household would need a gross monthly income of at least $11,071 (about $132,852 per year).

• If you have a $400 car payment and $200 in student loans, your total debt would be $3,700. Under the 36% rule, you would need a monthly income of $10,277. Since you need to satisfy both parts of the rule, the higher income requirement ($11,071) would be your target.

Using the same $100,000 income example:

• $8,333 x 0.36 = $3,000 (Maximum Total Monthly Debt) If your mortgage is $2,333, you would have $667 remaining for all other monthly debt payments to stay within the 36% limit.

To find your maximum housing payment, take your annual gross income (before taxes), divide it by 12, and multiply by 0.28. For example, if you earn $100,000 a year:

• $100,000 / 12 = $8,333 (Gross Monthly Income)

• $8,333 x 0.28 = $2,333 (Maximum Monthly Housing Payment)

Not necessarily. While it is a standard for many conventional loans, it is more of a “gold standard” for financial health. Some programs, like FHA loans or those for asset-rich individuals seeking for real estate investments, may allow for higher ratios—sometimes up to 43% or even 50%—depending on your credit score and down payment.

The 28/36 rule is a guiding principle used by mortgage lenders to assess a borrower’s debt-to-income (DTI) ratio. It suggests that:

• 28%: No more than 28% of your gross monthly income should go toward your total housing payment (Principal, Interest, Taxes, and Insurance—PITI).

• 36%: No more than 36% of your gross monthly income should go toward all debt payments combined, including your mortgage, car loans, student loans, and credit card debt.