The 28/36 Debt-to-Income Rule: Your Blueprint for Affordable Homeownership

When considering a major purchase like a home, understanding your financial capacity is crucial. Many potential homebuyers in the US and beyond struggle to determine an appropriate budget without clear guidance. Fortunately, financial experts have developed a proven framework—the 28/36 rule—that simplifies this decision-making process by measuring your debt-to-income ratio.

Understanding the 28/36 Framework

The 28/36 rule serves as a diagnostic tool for assessing whether you’re overextending yourself financially. At its core, the principle divides your spending into two categories:

Your housing expenses (the “28” component) should consume no more than 28% of your gross monthly income. These housing-related costs encompass your mortgage principal and interest, property taxes, homeowners insurance, private mortgage insurance when applicable, and any homeowners association fees.

Your total debt obligations (the “36” component) should never surpass 36% of your gross monthly income. This broader category includes your housing payments plus all other recurring debt: credit card payments, student loans, auto loans, and personal loans.

Why does this matter? When debt consumes too large a percentage of your income, you have insufficient funds for essential expenses like food, utilities, and emergency savings. Additionally, lenders use debt-to-income ratios as a critical approval metric—exceeding these thresholds can result in loan denial.

Calculating Your Affordability Ceiling

Start by determining your household’s gross monthly income. For salaried employees, divide your annual salary by 12. Freelancers or those with variable income should calculate an average monthly figure based on the past year’s earnings.

From there, the math becomes straightforward:

• Multiply your gross monthly income by 0.28 to find your maximum housing budget
• Multiply your gross monthly income by 0.36 to find your maximum total debt ceiling

Worked example: A couple earning $60,000 each generates $120,000 in combined annual income ($10,000 monthly). Following the 28/36 rule:

• Maximum housing cost: $10,000 × 0.28 = $2,800/month
• Maximum total debt: $10,000 × 0.36 = $3,600/month

If this couple already carries $2,000 in monthly debt payments, their housing budget shrinks to $1,600 or less. Conversely, if they have no existing debt, they could allocate up to $3,600 toward housing.

Strategies for Expanding Your Home Budget

The 28/36 rule isn’t a rigid ceiling—it’s a starting point. If your desired home exceeds this calculation, several proven tactics can help:

Increase your down payment: While lenders accept deposits as low as 3.5%, putting down 20% or more eliminates private mortgage insurance costs and reduces your monthly burden. This strategy works particularly well in competitive US housing markets.

Secure a competitive interest rate: Shop multiple lenders aggressively. Even a 0.5% difference in interest rates compounds dramatically over a 15 or 30-year mortgage term, potentially saving tens of thousands of dollars.

Accelerate debt repayment: Eliminate high-interest obligations like credit cards and personal loans before taking on a mortgage. This immediately increases the percentage of your income available for housing.

Strengthen your emergency reserves: Build a cash cushion covering 6-12 months of expenses. This safety net protects you during income disruptions and reduces financial stress.

The Conservative Approach

While the 28/36 rule permits housing costs up to 28% of income, that doesn’t mean you should allocate that amount. Life circumstances—job loss, medical emergencies, economic downturns—can alter your situation dramatically. A mortgage lasting 15-30 years exposes you to considerable long-term risk.

Adopting a more conservative stance aligns with sound financial principles. Rather than stretching to the maximum, consider a housing payment representing 20-25% of your income. This buffer provides flexibility for unexpected challenges and accelerates wealth building through additional savings and investments.

Making Your Decision

Ultimately, your home affordability depends on personal comfort levels with debt and your specific financial situation. The 28/36 rule provides an evidence-based framework—not an absolute mandate. Use it as your compass, but remember that the most sustainable homeownership strategy balances ambition with pragmatism. Enter the mortgage process informed and confident, knowing your numbers support your decision.