28/36 Rule Calculator: Math You Need to Know

LAST UPDATED: May 29, 2023 | By Conrad Golly
28/36 rule Calculator Math You Need to Know

Are you thinking of buying a house? When it comes to affording a house, your salary is a major factor. It’s like the key ingredient that helps determine your purchasing power. Well, you might have stumbled upon something called the “28/36 rule.” Now, what the heck is that and why should you care? Let me break it down for you.

It’s pretty straightforward, really. Here’s the deal: you should spend no more than 28% of your monthly income on housing stuff like your mortgage, taxes, and insurance. And that’s not all! Your total debt payments, including housing costs, shouldn’t exceed 36% of your monthly income.

That means if you’ve got other debts hanging around, like car loans or credit card bills, those will be factored into the equation too. Now, mind you, the 28/36 rule ain’t set in stone. It’s more like a handy starting point to see what kind of home you can afford. Stick to this rule, and you won’t end up drowning in debt or struggling to make your mortgage payments.

28/36 Calculator Tool

28/36 Calculator Tool

28/36 Rule Calculator Instructions

To make things easier, you can use a 28/36 mortgage calculator to see how much you can afford.

Here are the steps to use the 28/36 mortgage calculator:

  1. Gather your financial information: Before you can use the mortgage calculator, you’ll need to know your income, expenses, and debt. Make sure you have all the necessary information handy, including your monthly income, housing expenses, and other debts.
  2. Enter your income: The first step in using the mortgage calculator is to enter your monthly income. This includes your gross income, before taxes and deductions.
  3. Enter your housing expenses: Next, you’ll need to enter your monthly housing expenses. This includes your mortgage payment, property taxes, and homeowners insurance.
  4. Enter your debt payments: If you have other debts, such as car loans or credit card debt, you’ll need to enter those payments as well.
  5. Check your results: Finally, the mortgage calculator will show you how much you can afford based on the 28/36 rule. If your debt-to-income ratio is below 36%, you should be able to afford a mortgage payment that is up to 28% of your monthly income.

What is the 28/36 Rule?

28/36 rule Calculator Math You Need to Know
28/36 rule Calculator Math You Need to Know

If you’re planning to buy a house, you may have heard of the 28 36 mortgage rule. This rule is a guideline that lenders often use to determine whether you can afford a mortgage. The rule states that you should spend no more than 28% of your gross monthly income on housing expenses and no more than 36% on total debt.

By following this guideline, you can ensure that you don’t take on more debt than you can handle. However, keep in mind that this rule is not set in stone, and lenders may have different requirements. It’s also important to note that the 28/36 rule doesn’t take into account other expenses, such as utilities, groceries, and entertainment.

Therefore, it’s essential to create a budget to ensure that you can comfortably afford your mortgage payment and other living expenses.

How Does the 28/36 Mortgage Rule Work?

If you’re looking to borrow money to buy a house, you’ll need to understand the 28/36 rule. This rule is a guideline that mortgage lenders use to decide how much money they’re willing to lend you based on your gross monthly income and your monthly debt payments.

The rule says that your monthly mortgage payment, including property taxes and insurance, should be no more than 28% of your monthly gross income. Additionally, your total monthly debt payments, including your mortgage payment, should be no more than 36% of your monthly gross income.

For example, let’s say your monthly gross income is $5,000. According to the 28/36 rule, your monthly mortgage payment should be no more than $1,400 (28% of $5,000), and your total monthly debt payments, including your mortgage payment, should be no more than $1,800 (36% of $5,000).

Let’s calculate the front-end ratio. This ratio indicates the percentage of your income that goes towards mortgage repayment. To find it, divide the housing costs by your income and multiply the result by 100%. In this case:

Front-end ratio = ($1400 / $5000) × 100% = 28%

Since 28% is at the 28% threshold, you meet the requirement of the first rule.

Now, let’s move on to the second part of the rule. We need to calculate the back-end ratio, which shows the percentage of your income allocated to total debt repayment. To do this, we’ll consider the total debt, which is the sum of housing costs and other debts:

Total debt = $1400 + $400 = $1800

With the total debt known, we can now compute the back-end ratio. Divide the total debt by your income and multiply the result by 100%:

Back-end ratio = ($1800 / $5000) × 100% = 36%

Since 36% is at the recommended level of 36%, your debts fall within the limits of the 28/36 mortgage rule. This means you could potentially not borrow a bit more without jeopardizing your financial situation.

Of course, you don’t have to go through these calculations manually. Our calculator does all the work for you! Simply enter your income, monthly housing costs, and other debts, and it will provide you with the front-end and back-end ratios automatically.

Mortgage lenders use the 28/36 rule to ensure that you don’t borrow more money than you can afford to repay. By limiting your monthly mortgage payment and total monthly debt payments, they reduce the risk that you’ll default on your loan.

It’s important to note that the 28/36 rule is just a guideline, and mortgage lenders may make exceptions in certain cases. For example, if you have a high credit score or a large down payment, they may be willing to lend you more money than the rule suggests.

In addition to helping you qualify for a mortgage, the 28/36 rule can also help you budget for your monthly expenses.

Why Is the 28/36 Rule Important?

Big Expenses Got You Down Make a Plan and Stick to It!
Big Expenses Got You Down Make a Plan and Stick to It!

If you’re in the market for a new home, you may have heard of the 28/36 mortgage rule. This rule is a guideline that mortgage lenders use to determine how much of a mortgage you can afford. It’s important to understand this rule because it can help you avoid overextending yourself financially and potentially defaulting on your mortgage.

Mortgage lenders require homebuyers to follow this rule because it helps them assess your ability to repay the loan. By limiting your total monthly debt payments to 36% of your income, you are less likely to default on your mortgage. This is because you have more money available to cover other expenses like food, transportation, and healthcare.

Your credit score is also an important factor when it comes to the 28/36 rule. A higher credit score can help you get a lower mortgage annual percentage rate (APR) and lower homeowners insurance rates. Credit score rate estimates suggest that a credit score of 700 or higher is ideal for getting the best mortgage rates.

Housing costs can vary widely depending on where you live. For example, if you live in a city with high housing costs, you may need to spend more than 28% of your income on housing expenses to find a suitable home. However, if you live in a rural area with lower housing costs, you may be able to spend less than 28% of your income on housing expenses.

How Much House Can You Afford?

When it comes to buying a home, one of the most important questions you’ll need to answer is, “How much house can you afford?” This question is essential because buying a home is a significant investment, and you don’t want to overextend yourself financially. The 28/36 rule is a useful tool that can help you determine how much house you can afford.

Determining how much house you can afford involves considering various factors, including your income, expenses, savings, and financial goals. Here are some steps to help you assess your affordability:

  1. Evaluate your finances: Begin by examining your overall financial picture. Calculate your monthly income after taxes and deduct any fixed expenses, such as bills, loan payments, and other obligations. This will give you an idea of how much disposable income you have available each month.
  2. Consider your debt-to-income ratio: Lenders often use a debt-to-income ratio (DTI) to assess affordability. DTI is the percentage of your monthly gross income that goes towards debt payments. The 28/36 rule we discussed earlier is a common guideline, where your housing costs should be no more than 28% of your income, and your total debt payments should not exceed 36% of your income.
  3. Determine your down payment: The amount you can put towards a down payment plays a significant role in affordability. Generally, a higher down payment reduces the loan amount and lowers your monthly mortgage payment. Saving for a substantial down payment can help increase your affordability.
  4. Consider additional costs: Besides the mortgage payment, remember to factor in other homeownership costs, such as property taxes, insurance, utilities, maintenance, and potential homeowner association (HOA) fees. These expenses can vary based on location and property type.
  5. Assess your savings and emergency fund: It’s crucial to have savings beyond the down payment to cover unexpected expenses, such as repairs or job loss. Maintaining an emergency fund can provide financial security and prevent financial strain.
  6. Get pre-approved for a mortgage: Consulting with a lender and obtaining a pre-approval can give you a clearer understanding of how much you can borrow based on your financial information and creditworthiness. Keep in mind that pre-approval is not a guarantee of a loan, but it provides an estimate.
  7. Plan for the long term: Consider your long-term financial goals and lifestyle. Purchasing a home should align with your plans, whether it’s for the short-term or a long-term investment.

Before you go…

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Conrad Golly

Conrad Golly

I’m Conrad, a retired first responder turned successful Tyapreneur with a passion for real estate, family, and business acquisitions. With a focus on growing online ventures, I bring a wealth of experience to the world of entrepreneurship. I write on investing, personal finance, family life, and business strategies, inspiring others to achieve their goals.