Lenders look at two ratios: how much of your gross income goes to housing, and how much goes to housing plus all other debt. Many people start with the 28/36 rule. This guide shows how those ratios turn into a price range using an example you can adjust.
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The 28/36 rule
- 28% of gross monthly income for housing (principal, interest, property tax, insurance, HOA, PMI).
- 36% of gross monthly income for housing plus all other monthly debt payments.
The lower of the two limits sets your monthly housing budget.
Example
Annual income $115,000 ($9,583 a month), $650 in other monthly debts, $60,000 for the down payment, a 6.75% 30-year loan, 1.2% property tax and $1,400 a year for insurance. PMI is added when the down payment is under 20%.
| Rule | Monthly housing budget | Estimated maximum price |
|---|---|---|
| 25 / 33 conservative | $2,396 | $335,013 |
| 28 / 36 conventional | $2,683 | $370,642 |
| 31 / 43 FHA-style | $2,971 | $406,271 |
The three rules are rules of thumb, not lender guarantees. Credit score, savings, loan type and the property all matter.
How rates change your price range
| Rate | Estimated maximum price (28/36) |
|---|---|
| 5.75% | $397,868 |
| 6.75% | $370,642 |
| 7.75% | $346,560 |
The monthly budget stays the same, so a higher rate leaves less of it for principal. A one-point rate change moves the price by roughly $24,000 to $27,000 here.
How debt and income change it
- Debts: at $650 a month, the 28% housing limit is the one that applies. If monthly debts rise to $1,200, the 36% total-debt limit takes over, the housing budget drops to $2,250 and the price to about $316,900.
- Income: at $150,000 income (with $650 in debts), the budget rises to $3,500 a month and the estimated price to about $471,800.
That is why paying down car or student debt before applying can help as much as saving more.
What the maximum does not cover
- Closing costs, moving costs and repairs. Keep cash beyond the down payment.
- Maintenance, utilities and furnishing.
- Changes in taxes and insurance over time.
Frequently asked questions
Should I buy at the maximum?
Not necessarily. The maximum is what a rule allows, not what fits your life. Compare the conservative rule to see a more cautious price.
Which income do I enter?
Use gross (before tax) household income, because lenders use gross income in these ratios.
Why does PMI show up?
If the down payment is under 20% of the price, the calculator adds PMI. At $370,642, $60,000 is about 16%.
This article is for general education and uses estimates. It is not financial, tax or legal advice. Your actual numbers depend on your lender, employer, tax situation and location. See our disclaimer.