The 28/36 rule: how much house can you afford?

What the 28/36 rule says

It is not a way to split a paycheck. It is a guideline for how much housing and debt a household carries, and it is measured on gross income, meaning pay before tax. Chase describes the two limits:

• 28% for housing. Generally principal, interest, taxes and insurance on the mortgage.
• 36% for all debt. The housing payment plus car loans, student loans, credit card payments and other debts. The total is your debt-to-income ratio, or DTI.

The CFPB defines DTI as "all your monthly debt payments divided by your gross monthly income."

Where the 28/36 rule comes from

Neither Chase nor the CFPB says who first set these numbers. The CFPB gives them in a toolkit for social service programs: for homeowners, a debt-to-income ratio of 28% to 35% or less for just the mortgage, taxes and insurance, and 36% or less for all debts. It says "consider maintaining" those figures, so they are advice, not a limit. We use 28% because it is the low end of the CFPB's range and the figure Chase uses.

A worked example on $6,000 a month before tax

So a buyer with $480 of other debt payments can put up to $1,680 into housing and stay inside both limits. With $800 of other debt, the 36% line leaves $2,160 - $800 = $1,360 for housing, even though 28% would allow $1,680. The lower of the two wins.

28/36 rule calculator

Type your pay before tax each month and what you pay on other debts. It gives your highest housing payment under each limit.

The 28/36 rule for a couple with two incomes

If you both go on the loan, you can add your gross incomes. Say $7,000 and $5,000 a month before tax, so $12,000. Housing at 28% is $3,360 and all debts at 36% is $4,320. Ask your lender which incomes and debts they use. If one of you applies alone, only that person's pay and debts count, and the same math gives a much lower number.

The rule says nothing about who pays what share of the payment. If you split by income, $7,000 and $5,000 are 58% and 42% of the $12,000, which is about $1,960 and $1,400 of a $3,360 payment. 50/50 is $1,680 each. TD Bank says 50/50 works well when both earn similar amounts, and suggests a proportional split when they do not. See how to split bills based on income.

When the 28/36 rule doesn't fit

• It uses gross pay. Chase says gross is used because it is easier to verify than net pay, which changes with taxes and deductions. It will not match what lands in your account.
• It is a guide, not a full picture. Chase says it may not reflect every detail of your finances or the local housing market.
• Lenders set their own limits. Chase says these are not hard rules that lenders use, and the CFPB says different loan products and lenders have different DTI limits.