How Much Should I Spend On A Home? Look To The 28/36 Rule

If you’re looking to buy a home, it’s important to know how much you can afford to spend. A good rule of thumb is the 28/36 rule. This rule says that your housing expenses (mortgage, property taxes, insurance, homeowners association fees, etc.) should not exceed 28% of your gross monthly income, and your total debt (housing expenses, credit card payments, car loans, student loans, etc.) should not exceed 36% of your gross monthly income. By following this rule, you can ensure that you’re not overspending on your home and that you’re able to comfortably make all of your debt payments each month.

If you’re not sure how much you can afford to spend on a home, you can use an online calculator to estimate your monthly mortgage payment. Once you know your estimated mortgage payment, you can use the 28/36 rule to determine how much you can afford to spend on a home. 

For example, let’s say your monthly income is $3,000. 28% of $3,000 is $840, so your monthly housing expenses should not exceed $840. 36% of $3,000 is $1,080, so your total monthly debt payments (housing expenses plus credit card payments, car loans, etc.) should not exceed $1,080.

The 28/36 rule is further used as a general standard by banks when they are considering whether to give out home credit. This ratio is intended to help families keep their monthly debt payments manageable so that they can afford other expenses and still have money left over for savings and other financial goals. 

While the 28/36 rule is not a hard-and-fast regulation, many banks still keep this rule in the back of their home credit dealings. Financial institutions will sometimes be more willing to provide an applicant with a higher line of credit than what the 28/36 rule initially proposes due to an excellent, long-term credit score.

If you’re looking to buy a home, the 28/36 rule is a good guideline to follow. By keeping your housing expenses and total debt payments within these limits, you can ensure that you’re not overspending on your home and that you’re able to comfortably make all of your debt payments each month.