28/36 Rule: What It Is and How to Use It
The 28/36 rule is a simple guideline lenders and consumers use to judge how much debt a household can safely carry. It says:
- Spend no more than 28% of your gross monthly income on total housing expenses (mortgage or rent, taxes, insurance, HOA fees).
- Spend no more than 36% of your gross monthly income on total debt payments (housing plus other debt such as auto loans, student loans, credit cards).
Key takeaways
- The rule helps estimate affordable housing and overall debt levels relative to income.
- Lenders often use it as part of underwriting, but many vary the thresholds depending on borrower qualifications.
- Staying within these limits can improve the chance of loan approval; very good credit may allow some leeway.
- Multiple hard credit inquiries can reduce credit scores and affect approval chances.
How the rule works
The rule is based on gross monthly income (income before taxes and payroll deductions). Lenders compare your expected housing payment and total monthly debt payments to that income to calculate two ratios:
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- Housing ratio = (monthly housing expenses) / (gross monthly income)
- Debt-to-income (DTI) ratio = (all monthly debt payments) / (gross monthly income)
Under the 28/36 rule, the housing ratio should be ≤ 28% and the DTI should be ≤ 36%.
What counts as gross income
Gross income is all income before taxes and deductions — the number shown before withholdings on your paystub. The 28/36 calculations use gross (pre-tax) monthly income.
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What counts as housing expenses
Housing expenses typically include:
- Monthly mortgage principal and interest (or rent)
- Property taxes
- Homeowners insurance
- Homeowners association (HOA) fees
Some lenders may also consider utilities or other housing-related costs, but those are often folded into total debt rather than the housing line item.
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What counts toward DTI
DTI includes all recurring monthly debt obligations, such as:
- Mortgage or rent payments
- Auto loan payments
- Minimum required credit card payments
- Student loan payments
- Personal loans and home equity loan payments
Example
If your gross monthly income is $5,000:
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- 28% housing limit = 0.28 × $5,000 = $1,400 per month for housing.
- 36% total debt limit = 0.36 × $5,000 = $1,800 per month for all debt.
So if your housing costs are $1,000, you could have up to $800 per month in other debt payments before exceeding the 36% DTI cap.
Special considerations
- Lenders don’t all use the 28/36 rule rigidly. Some require lower percentages for riskier borrowers or higher standards for certain loan products; others may allow higher DTIs for applicants with strong credit scores, sizable savings, or compensating factors.
- Every loan application typically triggers a credit inquiry. Multiple hard inquiries in a short time can lower your credit score and reduce approval odds.
- If your ratios are borderline, improving your credit score, paying down debt, or increasing income can help.
Bottom line
The 28/36 rule is a practical, conservative framework to judge affordable housing payments and overall indebtedness relative to income. Use it when budgeting or preparing to apply for loans, but remember lenders may adjust thresholds based on credit history and other factors. If your ratios are close to the limits, consider improving credit or reducing debt before applying.
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Sources
Social Security Administration — Gross and net income definitions
Consumer Financial Protection Bureau — Debt-to-income ratio guidance
Federal Deposit Insurance Corporation — Loans and mortgages information