you've probably heard the rule of thumb — spend no more than 28% of your income on housing. But lenders don't just look at your mortgage payment. They look at *all* your debts through the **debt-to-income (DTI) ratio**, and that single number determines exactly how much house you can afford.
What Is the 28/36 Rule?
The 28/36 rule is the lending industry's standard framework. Your monthly housing costs — principal, interest, taxes, and insurance, or **PITI** — shouldn't exceed 28% of your gross monthly income. Your total debt payments, housing plus car loans, student loans, and credit cards, should stay under 36%.
Lenders use the 36% back-end ratio as their hard ceiling, with FHA and Fannie Mae allowing up to 43% in some cases. here's the counterintuitive part: lenders start with your income, not the home price. They multiply your monthly income by the DTI limit, subtract your existing debts, deduct a buffer for taxes and insurance (roughly 20% of PITI), and then reverse-engineer the mortgage formula to find your maximum loan.
How Your Down Payment Changes the Equation
Your down payment affects three things: the loan amount you need, whether you'll pay **PMI (Private Mortgage Insurance)**, and your monthly payment. Put down less than 20%, and you'll typically pay 0. 5–1.
5% of the loan amount per year in PMI — money that protects the lender, not you. PMI automatically drops off once your loan-to-value ratio reaches 78%, but a 20% down payment eliminates it from day one. PMI isn't the same as homeowners insurance; PMI covers the lender if you default, while homeowners insurance covers you.
Should You Buy the Most Expensive House the Bank Approves?
Probably not. The bank's maximum is based solely on DTI ratios, not your lifestyle. If you max out at 43% DTI, you'll have less room for retirement savings, travel, emergencies, and everyday flexibility.
Most financial advisors recommend targeting **28–33%** back-end DTI for a comfortable financial cushion. To find your real number: calculate your gross monthly income and total debts, choose your DTI target, estimate your down payment, enter the current mortgage rate, and use the calculator below.
| DTI Target | Max Housing Payment | Existing Debts | Available for PITI | Est. Max Home Price |
|---|---|---|---|---|
| 28% (Conservative) | $2,333/mo | $500/mo | $1,833/mo | ~$273,000 |
| 36% (Moderate) | $3,000/mo | $500/mo | $2,500/mo | ~$388,000 |
| 43% (Aggressive) | $3,583/mo | $500/mo | $3,083/mo | ~$490,000 |
Find Your Number
Ready to get your personalized maximum home price? The House Affordability Calculator walks through the same math lenders use, including DTI limits, PMI estimates, and your specific max home price.