📋 Table of Contents
The 28/36 Rule: Your Foundation for Home Affordability
The 28/36 rule is the gold standard for determining home affordability and is used by lenders nationwide to qualify borrowers:
- 28% Rule: Your monthly housing payment shouldn't exceed 28% of your gross monthly income
- 36% Rule: Your total monthly debt payments shouldn't exceed 36% of your gross monthly income
28/36 Rule Example:
Annual Income: $80,000
Monthly Gross Income: $6,667
Max Housing Payment (28%): $1,867
Max Total Debt (36%): $2,400
If you have $300 in other monthly debts, your maximum housing payment would be $2,100 ($2,400 - $300).
What's Included in Your Housing Payment?
Your monthly housing payment includes more than just principal and interest. Understanding PITI is crucial:
PITI Breakdown:
- Principal: The amount applied to your loan balance
- Interest: The cost of borrowing money
- Taxes: Property taxes (typically 1-2% of home value annually)
- Insurance: Homeowners insurance and PMI if applicable
Additional Costs to Consider:
- HOA fees (if applicable)
- Private Mortgage Insurance (PMI) if down payment < 20%
- Utilities and maintenance costs
- Emergency repair fund
Down Payment Strategies for 2025
Your down payment significantly impacts your home affordability and monthly payments:
Down Payment Impact
Down Payment Impact on $300,000 Home:
| Down Payment | Amount | Loan Amount | Monthly Payment* | PMI Required |
|---|---|---|---|---|
| 5% | $15,000 | $285,000 | $1,635 | Yes |
| 10% | $30,000 | $270,000 | $1,550 | Yes |
| 20% | $60,000 | $240,000 | $1,378 | No |
*Based on 7% interest rate, 30-year mortgage
Credit Score Impact on Affordability
Your credit score directly affects your interest rate and, consequently, how much house you can afford:
🧮 Try Our Home Affordability Calculator
Get an instant estimate of how much house you can afford based on your income, debts, and down payment.
Calculate Now →Interest Rate by Credit Score (2025 Average):
- 760+: 6.8% - 7.2%
- 700-759: 7.0% - 7.5%
- 660-699: 7.3% - 7.8%
- 620-659: 7.8% - 8.5%
- 580-619: 8.5% - 9.5%
Using Our Home Affordability Calculator
Our calculator takes into account all the factors mentioned above:
- Enter Your Income: Include all sources of stable monthly income
- List Your Debts: Credit cards, car loans, student loans, etc.
- Down Payment Amount: How much you can put down
- Interest Rate: Current rate based on your credit score
- Property Details: Taxes, insurance, and HOA estimates
Common Mistakes to Avoid
⚠️ Avoid These Pitfalls:
- Focusing Only on Monthly Payment: Don't forget about closing costs, moving expenses, and immediate home improvements
- Maxing Out Your Budget: Just because you qualify doesn't mean you should spend it all
- Ignoring Future Goals: Consider how homeownership fits into your overall financial plan
- Not Getting Pre-Approved: Get pre-approved before serious house hunting
Leave Room For:
- Emergency fund maintenance
- Retirement savings
- Lifestyle changes
- Home maintenance and repairs
Market Conditions in 2025
Current market factors affecting home affordability:
- Interest Rates: Higher rates mean lower purchasing power
- Home Prices: Regional variations in price appreciation
- Inventory: Limited supply in many markets
- Competition: Multiple offer situations remain common
Pre-Approval vs. Pre-Qualification
Pre-Qualification
- Basic income and debt review
- No document verification
- Quick estimate only
- Limited value in competitive markets
Pre-Approval
- Full financial documentation
- Credit check and verification
- Conditional loan commitment
- Stronger position for offers
Next Steps: From Calculation to Purchase
- Use our calculator to determine your budget range
- Get pre-approved with a reputable lender
- Find a qualified real estate agent in your target area
- Start your home search within your confirmed budget
- Factor in all costs when making offers
- Use the 28/36 rule as your starting point
- Factor in all costs beyond principal and interest
- Higher credit scores mean better rates and more buying power
- Don't max out your budget - leave room for other goals
- Get pre-approved before serious house hunting