The 28/36 Rule: How Realistic Is It?
The 28/36 rule says you should spend no more than 28% of your before-tax monthly income on a house payment and a maximum of 36% of your income on all debt payments plus housing.
But is this guideline realistic in today’s real estate market, where home prices and interest rates are sky-high? Let’s find out.
28/36 Rule in Dollars
Here’s how the 28/36 rule would look in real dollars based on various income levels.
Keep in mind that the housing payment includes the principal and interest payment, property taxes, homeowners insurance, private mortgage insurance (PMI), and HOA dues, if any.
Income | Housing Expense (28%) | Max Debt Payments | Housing + Debt Payments (36%) |
$3,000 | $840 | $240 | $1,080 |
$4,000 | $1,120 | $320 | $1,440 |
$5,000 | $1,400 | $400 | $1,800 |
$6,000 | $1,680 | $480 | $2,160 |
$7,000 | $1,960 | $560 | $2,520 |
$8,000 | $2,240 | $640 | $2,880 |
$9,000 | $2,520 | $720 | $3,240 |
$10,000 | $2,800 | $800 | $3,600 |
$11,000 | $3,080 | $880 | $3,960 |
$12,000 | $3,360 | $960 | $4,320 |
Payment figures are a starting point, but is it realistic to buy a home with these “maximum” payments?
How Realistic is the 28/36 Rule?
Let’s examine how maximum housing expenses from the above table translate to home prices, based on assumptions found below.
| Income | Max Home Price: 28/36 Rule* |
| $3,000 | $98,000 |
| $4,000 | $130,000 |
| $5,000 | $170,000 |
| $6,000 | $210,000 |
| $7,000 | $245,000 |
| $8,000 | $280,000 |
| $9,000 | $320,000 |
| $10,000 | $355,000 |
| $11,000 | $390,000 |
| $12,000 | $430,000 |
*Assumes a conventional loan with 5% down at an example 7% interest rate, 0.53% PMI factor per MGIC, 1% in annual property taxes, $100/mo homeowners insurance, no HOA. Not a commitment to lend. Home prices rounded. Your numbers will be different. Get an accurate quote from a licensed lender.
The median home price in the U.S. was over $420,000 in the first quarter of 2024, according to the Census Bureau and Department of Housing and Urban Development. But someone would have to make nearly $150,000 per year to be under the 28/36 “rule” at this home price.
The median U.S. household income was around $75,000 in 2022, the most recent data reported by the Census Bureau.
In other words, “obeying” the 28/36 rule means you would need double the median income to afford the median-priced home. It’s nice if you have twice the nation’s median income. But if you do, chances are you live in an expensive area where homes are twice the national average, too.
In any case, the 28/36 rule is probably unrealistic for most first-time buyers.
Can Anyone Meet the 28/36 Rule In Today’s Housing Market?
In today’s market, the 28/36 rule is conservative, despite expert recommendations that suggest otherwise.
At today’s home prices and interest rates, you’re almost guaranteed to be above these numbers unless you have a high income in an area with cheap housing.
Most first-time homebuyers will be hard-pressed to meet the 28/36 rule when buying their first home:
Your income is not as high as older homebuyers
You probably have a small down payment
Mortgage rates are at two-decade highs
Home affordability is at its worst levels since at least 1971
New homebuyers should not feel bad or unwise for taking on a house payment well above the 28/36 rule if homeownership is a priority.
Yes, it will require sacrifices. It could be uncomfortable for years. But if homeownership were easy, the U.S. would have a much higher homeownership rate than 65%. Valuable accomplishments are difficult.
Do Lenders Even Use the 28/36 Rule?
Lenders don’t use the 28/36 rule. That could come as a surprise since the likes of Investopedia claim, “Lenders often use this rule to assess whether to extend credit to borrowers.”
Instead, lenders use computerized underwriting systems. The algorithm determines the maximum debt-to-income ratio, or DTI, for that borrower, up to certain limits. The 28/36 rule translates to:
28%: Housing DTI
36%: Total DTI
Conventional loans allow total DTIs of 43%, but up to 50% in some cases. There’s no specific housing DTI maximum
FHA loans are even more lenient and have been known to allow a total DTI of up to 56.99%
Even the conservative USDA program allows a DTI up to 41%, significantly higher than the rule suggests
The closest thing to a 28/36 rule mentioned in any major lending guide is Fannie Mae’s 36% DTI limit on riskier loans where the lender chooses to manually underwrite, not run it through the computer. This is a very small percentage of loans. Some lenders don’t even offer manual underwriting.
How Much of My Income Should I Spend on a House?
Deciding how much to spend on a monthly payment is a personal decision. It’s not easily boiled down to a one-size-fits-all number.
High Expenses: Someone with kids, car payments, and college loans should probably stick to the 28/36 rule or even lower if they can. They have a lot of other expenses.
Frugal Homebuyer: Someone with little debt with conservative spending habits might spend much more than 28% of their income on a house payment. They might feel fine spending 40% of their gross income on housing as long as they can get approved for the mortgage.
Alternate Sources of Income: Many people make side income that is not “countable” as income for a mortgage. They might choose to spend a high portion of their primary income.
The best way to discover your number is to create a budget. Factor in extra expense for repairs and maintenance. Decide what monthly payment you might feel comfortable with, then input that number into an affordability calculator to determine your approximate home price.
The 28/36 Rule: Just a Rule of Thumb
Someone shouldn’t feel bad because they exceed the 28/36 recommendation. Lenders typically don’t hold you to this number, and most people need to spend more just to break into the housing market.
Do some budgeting, talk to lenders, and decide what you feel comfortable spending on a home.
