The quick answer: most lenders will approve you to spend up to 43–50% of your gross income on total debt. But being approved isn’t the same thing as being able to comfortably afford a house. A better target for most first-time buyers is the 28/36 rule.
The 28/36 rule explained
The 28/36 rule is a classic lending guideline that splits your income into two ratios:
- 28% front-end ratio: your total monthly housing payment — principal, interest, property taxes, homeowners insurance, PMI, and HOA (PITI + PMI + HOA) — should be no more than 28% of your gross monthly income.
- 36% back-end ratio: your housing payment plus all other debt (car payments, student loans, minimum credit card payments) should be no more than 36% of gross income.
A simple example
Let’s say you earn $85,000 a year. That’s about $7,083 in gross monthly income.
- 28% of $7,083 = $1,983 — your comfortable housing budget.
- 36% of $7,083 = $2,550 — your total debt ceiling.
- If you already pay $450 a month toward a car loan and credit cards, you have $2,100 left for housing — about what the 28% rule suggests.
Run these exact numbers for your situation in our affordability calculator.
What’s actually in your monthly housing payment?
First-time buyers are often shocked when the payment shown in a listing doesn’t match what they’ll actually pay. That’s because most advertised mortgage payments only show principal and interest. Here’s what the full payment usually includes:
- Principal & interest. What you pay the lender each month.
- Property taxes. US average is about 1.1% of home value per year, but varies widely — New Jersey averages over 2% while Hawaii is under 0.3%.
- Homeowners insurance. Usually 0.25–0.5% of home value per year.
- Private mortgage insurance (PMI). Typically 0.3–1.5% of the loan per year when you put less than 20% down.
- HOA dues. For condos and some communities, can be anywhere from $100 to $1,000+/month.
What lenders look at (beyond DTI)
Your debt-to-income ratio is the headline number, but approvals hinge on several other things:
- Credit score. Conventional loans really open up at 680+, with the best pricing at 760+.
- Employment history. Lenders typically want two years of steady income.
- Down payment. 3–5% minimums are common for first-time buyer loans; 20% removes PMI.
- Reserves. Several months of payments in savings shows you can weather a bump.
The honest affordability checklist
If your planned payment passes all of these, you’re in good shape:
- Could you still save 10% of income after moving in?
- Do you have 3–6 months of expenses in an emergency fund?
- Are your debts stable or shrinking, not growing?
- Have you budgeted for maintenance (about 1% of home value per year)?
- Will you be staying in the home at least 3–5 years? Buying and selling too soon is expensive.
Common mistakes to avoid
- Buying at the top of your approval. Approvals are designed to match lender risk, not your life goals.
- Ignoring closing costs. Add 2–5% of the purchase price in cash on top of your down payment.
- Forgetting PMI. A 5% down loan on $400k adds roughly $200–250/month of PMI to your budget.
- Assuming taxes and insurance are fixed. Both tend to rise slightly every year.
Bottom line
Start with the 28/36 rule, run a realistic PITI with our mortgage calculator, and make sure the payment works with your actual life — not the theoretical maximum a lender will approve.