How Much House Can You Afford? (The 28/36 Rule, Worked Through)

A lender looks at your income and tells you what you're approved for. It feels like an answer to the question "how much house can I afford" — but it isn't. It's the answer to a different question: how much they're willing to lend before the risk to them becomes uncomfortable. Those two numbers can differ by eighty thousand dollars, and the gap is where a lot of people get into trouble.

The Problem Nobody Warns You About

Mortgage lenders assess you mostly on debt-to-income ratio — what share of your gross income goes to debt payments. Under the rules most conventional lending follows, that ratio can typically run up to around 43%, and some government-backed programs will go higher still with strong compensating factors like a big down payment or substantial savings.

That's a legitimate number from the lender's point of view. Their exposure is the loan. If you can make the payments, the arrangement works for them — and historically, most borrowers at that ratio do make the payments.

But "I can technically make this payment every month for thirty years" and "this payment leaves me room to live" are not the same standard. The approval letter is a ceiling on their risk, not a recommendation about yours. Nobody at the bank is modelling your childcare costs, your car finally dying, or the year your hours get cut.

The widget below shows the size of that gap. It isn't small.

The 28/36 Rule

The guideline has been around for decades and survives because it's crude, memorable and roughly right. Two numbers.

28% — the housing limit

No more than 28% of your gross monthly income — before tax, not what lands in your account — should go to housing. And "housing" means the whole payment, not just the loan:

• Principal — the part that actually reduces what you owe
• Interest — the lender's fee
• Taxes — property tax, usually collected monthly with the payment
• Insurance — homeowners insurance, plus mortgage insurance if you put down less than 20%

Lenders call the bundle PITI. Forgetting the T and the I is the single most common way first-time buyers overshoot, because taxes and insurance can easily add $400 a month or more to a payment people budgeted at the loan amount.

36% — the total debt limit

No more than 36% of gross income on all required debt payments combined: the housing payment plus car loans, student loans, minimum credit card payments, personal loans. Not groceries, utilities or subscriptions — just debt.

The lower number wins

This is the part people miss. You don't get to pick the friendlier limit — you're bound by whichever produces the smaller housing budget. Carry enough other debt and the 36% rule takes over and starts shrinking your house.

A Worked Example, Step by Step

Take a household earning $72,000 a year — $6,000 a month gross — with a $500 car payment and no other debt.

So $1,660 a month for the whole housing payment. Now work backwards to a house price. Assume property taxes and insurance run about $400 a month:

At 6.55% over 30 years — the average 30-year fixed rate as of mid-July 2026 — $1,260 a month supports a loan of about $198,000. With a 20% down payment, that's a home of roughly $248,000.

Meanwhile a lender working to a 43% ratio might approve a housing payment of $2,080 — a $331,000 home. Same household, same income, same month.

Rates move constantly and they move this answer more than almost anything else, so it's worth re-running the numbers against whatever rate you're actually quoted. A mortgage calculator handles the full picture — and if you enter your income and existing debt payments, its affordability indicator gives you the two ratios lenders will actually be looking at before you apply.

What a $100 Car Payment Really Costs You

Here's the most useful thing to take from all this, and it's rarely spelled out.

Once the 36% limit is the one binding you, every dollar of other monthly debt is a dollar removed from your housing budget. And at 6.55% over 30 years, $100 a month of payment supports about $15,700 of loan — call it $20,000 of home price with a 20% down payment.

So a $400 car payment isn't costing you $400. It's costing you roughly $80,000 of house.

There's a wrinkle worth knowing, though, and the widget above shows it. The back-end limit only starts biting once your other debt exceeds the gap between the two rules — 8% of your income, or $480 a month at a $6,000 income. Below that, the 28% housing cap is what's holding you back and a small car payment costs you nothing in home-buying power at all.

Which suggests a genuinely actionable strategy: if you're carrying more than about 8% of your income in other debt payments, clearing debt before house-hunting may expand your budget faster than saving does — though a larger down payment has its own separate benefits, including avoiding mortgage insurance. A savings goal date calculator is a fair way to compare the two paths against your own timeline.

Where Your Payment Actually Goes

Now the part that surprises almost every first-time buyer.

Your monthly payment stays the same for thirty years, but what it does changes completely. Every month, interest is charged on whatever you still owe. Whatever's left of your payment after covering that interest goes to reducing the balance. Since the balance starts enormous, the interest starts enormous.

On a $200,000 loan at 6.55%, the monthly principal-and-interest payment is $1,271. Here's the first one:

After a full year of payments — over $15,000 handed over — you've reduced what you owe by $2,214. That's about 1% of the loan.

The balance does tip eventually. Principal only starts exceeding interest at around year 19 of a 30-year loan. And across the full term you pay $257,000 in interest on a $200,000 loan — more than the loan itself, for a total of $457,000.

This process is called amortization, and none of it is a trick. It's just what happens when interest is charged on a balance that starts at its maximum. But it explains why people who sell after five years are often startled by how little equity they've built, and why the next section matters so much.

What Extra Payments Actually Do

Because interest is charged on the remaining balance, any extra dollar you put toward principal removes not just that dollar of debt but every future interest charge that dollar would have generated for the rest of the loan. Early payments do this for longer, so they do it best.

On that same $200,000 loan at 6.55%:

An extra $200 a month — a 16% larger payment — retires the loan nine years early and saves $91,000 in interest. The leverage is enormous precisely because the early years are so interest-heavy.

Two practical notes. Make sure extra payments are applied to principal, since some servicers will otherwise treat them as prepaying next month's bill, which achieves nothing. And paying down the mortgage isn't automatically the best use of spare cash — an employer retirement match, high-interest credit card debt, or simply not having an emergency fund yet will usually beat it. This is a comparison worth doing rather than assuming.

Where the Rule Doesn't Fit

The 28/36 rule is a rule of thumb from a different era of housing costs, and treating it as gospel would be its own mistake. Some honest limitations:

• It uses gross income, so it quietly assumes a typical tax burden. If yours is unusually high or low, the rule is calibrated wrong for you.
• In expensive metros almost nobody meets it. If 28% wouldn't rent you a studio in your city, the rule is describing a market you don't live in.
• It ignores everything that isn't debt — childcare, medical costs, supporting family, a long commute. Two households with identical incomes can have very different real room to manoeuvre.
• It ignores stability. A tenured salary and variable commission income deserve different margins even at the same annual figure.
• Owning costs more than the payment. Maintenance, repairs and replacing things is commonly estimated at around 1% of the home's value per year, and it isn't in any of these numbers.

Use it as a starting point and a reality check, not a verdict. The genuinely useful question isn't whether you clear the ratio — it's what the payment leaves you afterwards, and whether that remainder still works on a bad month rather than a good one.

The Takeaway

The approval amount answers the lender's question. The 28/36 rule is an attempt at answering yours, and on a typical income the two can differ by the price of a small house.

Run both numbers before you start looking, because the number you have in your head when you walk into an open house is the one you'll end up anchored to. And know what you're signing up for: for the first two decades your payment is mostly rent paid to a bank, which is exactly why a modest extra payment early on is worth so disproportionately much.

Run your own numbers

Enter your income and debts and the affordability indicator grades the payment against both limits, so you can see which one is binding you. Free, no sign-up, runs in your browser.