How Much House Can I Afford? The 28/36 Rule: Simplified

Table of Contents

1. Introduction
    
2. What Is the 28/36 Rule?
    
3. How to Calculate How Much House You Can Afford
    
4. Beyond the 28/36 Rule: Other Factors to Consider
    
5. Tips for Staying Within Your Budget
    
6. Things Not to Do
    
7. Tools to Help You Calculate Affordability
    
8. Ready to Take the Next Step?
    

 

Searching or browsing houses online is something we must admit that we do from time to time. We could almost even say that it might become a hobby of ours, and sometimes we feel disappointed when a house we are interested in finally gets sold.

There will come a time when you think you have the budget already to buy a house, but there is something in the back of your mind, and you don’t know what it is, but you want to point your finger at it.

Chances are it is because you are not fully ready, and you are hesitant to proceed with buying a house because you keep asking yourself if what you are doing is right. Most people feel this way, especially if they have worked for years and years and finally come to a moment when they have to decide on their next ideal home. They ask themselves, would it be worth it?

Aside from the questions like “What could be the overall expenses if I buy a house?” or “How much money do I need for a downpayment.” The biggest question of all would be “How much house can I afford? ”

There’s a simple guideline that many lenders and financial experts recommend — the 28/36 Rule. This rule gives you a clear idea of how much you should be spending on your mortgage and other debts to keep your finances healthy to avoid finding yourself in a pitfall you created because you miscalculated. 

This is very important, especially for married couples who have kids that they cannot afford mistakes and don’t want their kids to suffer because of a bad decision.

In this article, we’ll break down how the 28/36 Rule works, how to apply it to your situation, and other key factors to consider when deciding how much house you can afford.

 

Key Takeaways:

• The 28/36 rule tells you exactly how much overall debt you can afford every month based on your monthly income.
   
• Housing expenses should not exceed 28% of your gross monthly income.​
   
• Total debt payments, such as car payment, internet provider, student loans (if any), childcare, and etc. should not surpass 36% of your gross monthly income.​
   
• Other factors like down payment, credit score, and future expenses when budgeting for a home.

 

So What Is this 28/36 Rule?

The 28/36 rule is just basically that 28% of your GROSS monthly income is for housing expenses while the 36% is your OVERALL debt payment. This is a commonly used financial principle that will help you budget your monthly income to stay financially healthy.

To give you a clearer definition, refer to the table below:

 

This rule ensures that you keep your finances healthy without compromising other important allocations of your money, such as savings, emergencies, and other budgets. And of course, all of this would be useless without, of course, discipline.

 

How to Calculate How Much House You Can Afford Using the 28/36 Rule

You get your annual gross income and then divide it by 12; then that becomes your gross monthly income. Multiply your gross monthly income by 0.28, and then you get the housing expenses per month. To get the amount for total debts, simply multiply the gross monthly income by 0.36, and then you get the amount for your monthly total debts.

To make things even clearer, here is an example below:

• Annual Gross Income: $70,000
   
• Monthly Gross Income: $70,000 ÷ 12 = $5,833
   
• 28% for Housing Costs: $5,833 × 0.28 = $1,633
   
• 36% for Total Debts: $5,833 × 0.36 = $2,100
   

In this scenario, your total monthly housing costs should not exceed $1,633. Additionally, your combined debt payments (including the mortgage) shouldn’t go beyond $2,100.

Using an online House Affordability Calculator from reputable websites like NerdWallet, Zillow, or Wells Fargo can provide an estimate based on your financial standings.

Beyond the 28/36 Rule: Other Factors to Consider

While the 28/36 Rule is a solid guideline, it doesn’t account for every financial situation. Here are a few other considerations:

• Down Payment: A larger down payment reduces your loan amount and lowers your monthly mortgage payments.
   
• Credit Score: A higher credit score typically qualifies you for better interest rates, reducing your total mortgage cost.
   
• Property Taxes and Insurance: These can vary significantly depending on your location, so be sure to estimate accurately.
   
• Lifestyle and Future Plans: Consider how much flexibility you want in your budget for travel, hobbies, or savings.
   

Tips for Staying Within Your Budget

1. Before you start house hunting, consider getting preapproved for a mortgage. It allows you to narrow down your expected costs, which gives you more focus on the prices within your buying power.
    
2. Don’t forget about closing costs, home maintenance, utilities, and repairs. These expenses can add up quickly.
    
3. Lowering your existing debt or not buying more things on credit can free up room in your budget, allowing you to afford a higher mortgage payment.
    
4. Homeownership comes with unexpected expenses, so it’s wise to have a financial cushion for repairs or emergencies.
    

 

Things Not To Do!

• Just because you qualify for a certain mortgage amount doesn’t mean you should max it out. Stick to what’s comfortable for you.
   
• Always consider your future plans! If you plan to start a family, switch careers, or pursue further education, consider how these changes might affect your finances.
   
• Homeowners association (HOA) fees, property taxes, and insurance premiums can vary greatly. Research these before making an offer.
   

 

Ready to Take the Next Step?

Always consider your future plans because what works for you today might not be applicable in the future. Make sure you are ready to commit to residing in your future home for a long time. Always leave more room for other unexpected costs along the way; just because you are budgeting doesn’t mean you’re financially ready. Do not ever max out your threshold, or you will find yourself in a bad place sooner. 

Always follow the 28/36 rule with discipline, and then you are set to a healthy financial standing.

 

About the Author

Aaron Jones is an award-winning real estate professional, recognized in the RE/MAX Hall of Fame with a Lifetime Achievement Award. As an Accredited Buyer’s Representative (ABR) and Seller Representative Specialist (SRS), he is dedicated to helping clients navigate the home-buying process with confidence. Licensed in Iowa, Minnesota, and Nebraska, Aaron brings local expertise and a commitment to exceptional service.

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