The standard rule: 28 percent of gross income
Most lenders use the 28 percent rule as a starting point. This means your monthly house payment — including principal, interest, property taxes, homeowners insurance, and mortgage insurance if you have it — should not exceed 28 percent of your gross monthly income (the money you earn before taxes).
If you earn $5,000 per month gross, your total housing payment should stay under $1,400. This is not a legal limit; it is the threshold lenders use to decide whether to approve your mortgage. Going above it does not automatically disqualify you, but it makes approval harder and may raise your interest rate.
The 28 percent figure exists because lenders have decades of data showing that borrowers who spend more than this tend to default at higher rates. It protects both you and the lender.
Key Takeaways
- The 28 percent rule means your total monthly housing payment should not exceed 28 percent of your gross monthly income, and this is what most lenders use to decide approval.
- Your housing payment includes not just the mortgage itself but also property taxes, homeowners insurance, and mortgage insurance, so the actual loan amount is lower than 28 percent of income suggests.
- Your total debt payments — housing plus car loans, credit cards, and student loans — should stay under 43 percent of gross income, which is the second threshold lenders check.
- A down payment of 20 percent avoids mortgage insurance and keeps your payment lower, but smaller down payments are common and the payment can still fit your budget.
- Your actual affordable payment depends on your other debts, job stability, emergency savings, and how much house you actually need, not just the lender's formula.
What counts as your "house payment"
The 28 percent calculation includes four things: the principal and interest on your loan, property taxes, homeowners insurance, and mortgage insurance (if your down payment was less than 20 percent). Lenders call this PITI — principal, interest, taxes, insurance — plus PMI if applicable.
Property taxes and insurance vary widely by location and home value. A $300,000 house in a low-tax state with low insurance costs might have $400 a month in taxes and insurance combined. The same house in a high-tax state could run $800 or more. This matters because it means the same loan amount produces different total payments depending on where you buy.
If you put down less than 20 percent, you will pay private mortgage insurance (PMI), which protects the lender if you default. PMI typically runs 0.5 to 1.5 percent of your loan amount per year, added to your monthly payment. A $300,000 loan with 10 percent down ($30,000) means you borrowed $270,000, and PMI might add $100 to $300 per month.
The 43 percent debt-to-income ceiling
Lenders also check your debt-to-income ratio (DTI), which includes all your monthly debt payments, not just housing. This includes your car loan, credit card minimums, student loans, and the new mortgage. The limit is usually 43 percent of gross income.
If you earn $5,000 gross per month, your total debt payments can be up to $2,150. If your car payment is $400, student loans are $250, and credit cards are $100, that is $750 already spoken for. Your housing payment can only be $1,400 (the 28 percent limit), leaving you at $2,150 total — right at the ceiling.
This is why paying down debt before buying a house matters. Every $100 you eliminate from car or student loan payments frees up $100 for a house payment. Some lenders will go above 43 percent if you have strong credit and savings, but most will not.
How down payment size affects your payment
A larger down payment lowers your monthly payment in two ways: you borrow less money, and you avoid mortgage insurance. A 20 percent down payment is the traditional threshold where PMI disappears.
On a $300,000 house, a 20 percent down payment is $60,000, leaving a $240,000 loan. A 10 percent down payment is $30,000, leaving a $270,000 loan plus PMI. The difference in monthly payment is roughly $200 to $400 depending on interest rates and your location's taxes and insurance.
Putting down less than 20 percent is common and does not disqualify you. First-time buyer programs often allow 3 to 5 percent down. The trade-off is a higher monthly payment and PMI, which you can remove later once you have paid the loan down to 80 percent of the home's value (or in some cases when the home appreciates).
When the formula does not match your real situation
The 28 and 43 percent rules are starting points, not the final word on what you can afford. Your actual comfort depends on factors the formula does not measure.
If you have a stable job with predictable income, you might comfortably carry a payment at 30 percent of income. If your job is commission-based or seasonal, 25 percent might be safer. If you have three months of expenses in savings, you can weather a temporary income drop; if you have no emergency fund, a payment at the upper limit is risky.
The formula also does not account for how much house you actually need. A $400,000 house might fit your budget, but a $250,000 house might suit your life better and leave more room for other goals — saving for retirement, paying for childcare, or taking a lower-stress job.
How to calculate your own affordable payment
Start with your gross monthly income. Multiply it by 0.28 to find the 28 percent ceiling for housing. Then subtract what you already pay monthly for car loans, student loans, and credit cards. The result is your maximum housing payment under the 43 percent rule.
Use the lower of these two numbers. If the 28 percent limit is $1,400 but your other debts total $900, your housing payment can only be $1,250 (to stay under 43 percent total). If your other debts are $200, your housing payment can be the full $1,400.
Once you have your maximum payment, use a mortgage calculator to work backward to a loan amount. Most calculators let you enter your payment and see what loan size it supports. Subtract your down payment from the home price to find the loan amount, then adjust the home price up or down until the numbers align.
What lenders actually approve versus what you should borrow
A lender might approve you for more than you should actually borrow. Approval means the lender believes you can make the payment; it does not mean the payment leaves room for life to happen — a job loss, a medical bill, a major repair.
If a lender approves you for a $1,400 payment but your other debts are already $800, you are at 44 percent DTI, which is above the standard threshold. Some lenders will do this if you have excellent credit or significant savings, but it leaves you little margin for error.
A safer approach is to aim for 25 to 27 percent of income for housing if you have other debts, or 25 to 28 percent if you do not. This gives you breathing room and makes it easier to handle unexpected costs without falling behind.
Frequently Asked Questions
Does my house payment include property taxes and insurance?
Yes. When lenders calculate whether you can afford a mortgage, they include property taxes, homeowners insurance, and mortgage insurance (if applicable) in the 28 percent rule. The actual loan payment is lower, but the total housing cost is what matters for approval.
What if I have no other debts?
If you have no car loans, credit cards, or student loans, you can use the full 28 percent of gross income for housing without hitting the 43 percent debt-to-income ceiling. This gives you more borrowing power, but the same caution applies: approval is not the same as affordability.
Can I get approved for more than 28 percent of my income?
Yes. Lenders sometimes approve payments up to 30 or even 31 percent of income if you have strong credit, significant savings, or a very stable income. Going above 28 percent is riskier and usually comes with a higher interest rate, but it is possible.
How does a co-signer affect my payment limit?
A co-signer's income counts toward the calculation. If you earn $3,000 and your co-signer earns $2,000, the lender uses $5,000 combined gross income to calculate the 28 percent limit. However, the co-signer's existing debts also count toward the 43 percent ceiling.
Should I aim for the maximum payment the lender approves?
Not necessarily. Just because you are approved for a certain payment does not mean it is comfortable. Consider your job security, how much you have saved for emergencies, and whether the payment leaves room for other financial goals. A lower payment gives you more flexibility.