The 28/36 Rule Explained
Mortgage lenders don't just look at your credit score; they look at your debt-to-income (DTI) ratio. The "28/36 Rule" is the gold standard used by most conventional lenders to determine how much house you can afford.
The Front-End Ratio: 28%
Your "front-end ratio" is the percentage of your gross monthly income that goes toward housing expenses. This includes your principal, interest, property taxes, and homeowners insurance (often called PITI), plus any HOA fees. Lenders generally prefer this number to be no higher than 28% of your gross (pre-tax) income. For example, if your household earns $10,000 a month gross, your maximum total housing payment should be no more than $2,800.
The Back-End Ratio: 36%
Your "back-end ratio" is your total debt load. This takes your new mortgage payment (from the front-end ratio) and adds all your other monthly debt obligations—student loans, minimum credit card payments, auto loans, and child support. Lenders want this total number to stay under 36% of your gross monthly income.
Why It Matters More Than the Approval Amount
During times of loose lending or high interest rates, lenders might approve you for ratios as high as 43% or even 50% (especially on FHA loans). Just because a bank approves you for a $600,000 mortgage doesn't mean you should take it. Pushing your DTI to 45% leaves very little margin for error if property taxes increase, a furnace breaks, or you face a medical emergency. The 28/36 rule keeps you "house poor" proof.