How it works
Lenders typically cap housing costs at 28% of gross monthly income, and total debt at 36%. We use the lower of the two, then subtract estimated property tax and insurance.
Formula
Budget = min(28% × income, 36% × income − debts)
Example
With $100,000 income, $500 in debts and $60,000 down at 6.5%, you could afford roughly a $370,000 home.
Assumptions & limitations
- Fixed interest rate for the full term.
- Excludes closing costs, points and rate changes.
- Property tax and insurance are treated as steady yearly amounts.
Frequently asked questions
Is the 28/36 rule strict?
No — it's a guideline. Some loan programs allow higher ratios, but staying under it keeps your budget comfortable.
Does a bigger down payment help?
Yes. It lowers the loan amount, the monthly payment, and can remove PMI.