Learn how the 28/36 rule helps you understand how much mortgage you can comfortably afford.
The 28/36 rule is a guideline used by lenders to determine a borrower's ability to afford a mortgage. It consists of two parts: the front-end ratio and the back-end ratio.
The front-end ratio considers the percentage of your income that goes towards housing costs, including your mortgage payment, property taxes, homeowners insurance, and private mortgage insurance. It should not exceed 28% of your gross income.
Example: If your monthly income is $4,000, your housing costs should not exceed $4,000 x 0.28 = $1,120.
The back-end ratio looks at all your debt obligations as a percentage of your income, including your housing costs and other debts like car loans, credit cards, and child support. This ratio should not exceed 36% of your gross income.
Example: With a monthly income of $4,000, your total monthly debt should not exceed $4,000 x 0.36 = $1,440.
Debts that are scheduled to be paid off within ten months are typically excluded from the back-end ratio calculation.
| Loan Type | Front-End Ratio | Back-End Ratio |
|---|---|---|
| Conventional Loan | 28% | 36% |
| FHA Loan | 31% | 43% |
| VA Loan | N/A | 41% |
| USDA Loan | 29% | 41% |
| Energy-efficient FHA Loan | 33% | 45% |