The Golden Rule of 28/36

When you start browsing homes, it's easy to fall in love with a property that's technically "within your budget" but practically leaves you house-poor. Lenders typically use two specific ratios to decide how much they are willing to lend you.

The Front-End Ratio (28%)

This is the percentage of your gross monthly income that goes toward your housing costs (Principal, Interest, Taxes, and Insurance - PITI). Lenders generally prefer this to be below 28%.

The Back-End Ratio (36%)

This is your Debt-to-Income (DTI) ratio. It includes your housing costs PLUS all other monthly debt obligations, like car loans, student loans, and credit card payments. Lenders typically look for a DTI of 36% or lower, though some programs allow for higher.

Factors That Influence Your Budget

1. Your Down Payment: A larger down payment reduces your loan amount and monthly interest, potentially increasing the price of the house you can afford.
2. Interest Rates: Even a 0.5% change in interest rates can shift your buying power by tens of thousands of dollars.
3. Property Taxes: These vary wildly by location and can add several hundred dollars to your monthly obligation.

Before You Visit an Open House

Knowing your numbers before you fall in love with a home is essential. Use our Home Affordability Calculator to see an estimate of your maximum purchase price based on your current income and debts.