About the 28/36 rule
The 28/36 rule is the traditional Fannie Mae mortgage qualifying framework, codified in the Fannie Mae Selling Guide and used as the default conservative test by most personal finance educators. Front-end DTI caps total housing payment (Principal, Interest, Taxes, Insurance, plus HOA and PMI) at 28% of gross monthly income. Back-end DTI caps total monthly debt (housing plus auto loans, student loans, credit card minimums, child support, alimony) at 36%. Both ratios must clear; the lower of the two sets your max loan. The CFPB Qualified Mortgage rule under Dodd-Frank later allowed back-end DTI up to 43% for safe-harbor approval, but the 28/36 remains the affordability target most planners recommend. For 2026 the baseline FHFA conforming loan limit is $815,000; loans above this are jumbo with stricter underwriting.
How the math works
- Monthly gross income = annual / 12. Use gross (pre-tax) because mortgage underwriting uses gross income.
- 28% front-end cap = 0.28 × monthly gross. This is the max combined PITI plus HOA plus PMI.
- Monthly tax + insurance + HOA = (annual property tax + annual insurance) / 12 + HOA monthly. This is the fixed non-P+I portion.
- Max P+I (front-end path) = 28% cap − fixed non-P+I. Convert to loan using standard mortgage formula.
- 36% back-end cap = 0.36 × monthly gross. Max P+I (back-end path) = 36% cap − existing debts − fixed non-P+I.
- Final max loan = min(front-end, back-end). Max house price = max loan / (1 − down payment percentage).
Comparison: 28/36 vs FHA, VA, jumbo
How the four common US mortgage frameworks differ on DTI ceilings, and the implication for max house price at $150,000 gross income with $600 monthly debts:
| Framework | Front-end DTI | Back-end DTI | Notes | Est. max house |
|---|
Sensitivity: how rate changes affect max house price
For the same income and debts, mortgage rate is the biggest single variable in max house price. Each 1 percentage point higher rate typically cuts max house price by 9 to 12%:
| Mortgage rate | Max loan | Max house price | Change from base |
|---|
Max house price by income tier (28/36 rule, 6.5%, 30-yr)
Computed at $600 fixed monthly non-housing debt, $6,000 annual property tax, $1,800 annual insurance, $0 HOA, 6.5% rate, 30-year amortization, 20% down. The $250K-income bar at $815K is capped at the FHFA 2026 conforming limit.
Cash needed to close (estimate)
Beyond the down payment, US closing typically costs 2 to 3% of price plus 2 months of PITI in reserves. For a max-house buyer:
- Down payment -
- Closing costs (2.5%) -
- 2 months PITI reserves -
- Total cash to close -
Worked example: $150,000 income at 28/36
The default scenario above. The math:
- Monthly gross income: $150,000 / 12 = $12,500.
- 28% front-end cap: $12,500 × 0.28 = $3,500 max PITI plus HOA.
- Monthly tax + insurance + HOA: ($6,000 + $1,800) / 12 + $0 = $650.
- Max P+I from 28% rule: $3,500 − $650 = $2,850.
- 36% back-end cap: $12,500 × 0.36 = $4,500 total debt service.
- Max P+I from 36% rule: $4,500 − $600 (debts) − $650 (tax+ins+HOA) = $3,250.
- Limiting ratio: front-end at $2,850 (lower than back-end $3,250). Front-end is the cap.
- Max loan at 6.5% for 30 years: $2,850 × ((1.005417)^360 − 1) / (0.005417 × (1.005417)^360) = ~$450,640.
- Max house price at 20% down: $450,640 / 0.80 = ~$563,300. Capped tool default uses tax/ins to find an equilibrium around $480K depending on iteration.
Why front-end and back-end ratios can disagree
The two ratios test different sides of the budget. For a household with low non-housing debt (no car loan, paid student loans, no credit card balances), the back-end will be very loose and front-end will be the binding constraint. For a household with significant non-housing debt (newer car, credit cards, student loans), the back-end usually binds first.
Worked contrast at $150,000 income:
- Light-debt buyer: $0 monthly debts. Front-end caps at $2,850 P+I. Back-end caps at $4,500 − $0 − $650 = $3,850 P+I. Front-end binds; max ~$450K loan.
- Heavy-debt buyer: $1,500 monthly debts. Front-end still caps at $2,850 P+I. Back-end caps at $4,500 − $1,500 − $650 = $2,350 P+I. Back-end binds; max ~$372K loan.
The heavy-debt buyer loses ~$78,000 in max loan to existing obligations. Paying down a $20,000 car loan with 30 months left at $700/month before applying is worth more in max house price than putting the same $20,000 toward the down payment.
FHA 31/43, VA 41 residual, jumbo 38/43
The three alternative US frameworks each carve out a different qualifying lane:
- FHA 31/43: Federal Housing Administration insured loans, designed for lower-credit and lower-down-payment buyers. Min 580 credit, 3.5% down. The looser 43% back-end allows ~$50,000-$100,000 more loan than 28/36 at the same income, but borrowers pay MIP for the life of the loan if down payment is under 10%. MIP cost: 1.75% upfront plus 0.55-0.85% annual.
- VA 41 residual: VA-guaranteed loans for eligible veterans, active-duty service members and surviving spouses. 0% down with full entitlement, no PMI/MIP, only a one-time funding fee (2.15-3.3%, waived for disabled vets). The 41% back-end target is a guideline, not a cap; VA underwriting prioritizes "residual income" (dollars left after PITI and debts) by region and family size. High-DTI VA loans are routine if residual is comfortable.
- Jumbo 38/43: Loans above the FHFA conforming limit ($815,000 baseline 2026, up to $1,222,500 in high-cost counties). Private-investor underwriting demands 700+ credit, 10-20% down, 38/43 DTI ratios and 6-12 months PITI in reserves. Jumbo rates typically run 10-25 bps over conforming.
Common mistakes that bust the 28/36 rule
- Using net income instead of gross. DTI uses gross (pre-tax) income, not take-home. Take-home is roughly 70-75% of gross; using take-home will understate your max by 25-30%.
- Forgetting property tax escrow. A $500,000 home in NJ at 2.5% effective rate is $12,500/year property tax alone, or $1,042/month. That single line item often eats half of your front-end cap.
- Ignoring HOA in condo/townhouse purchases. A $400/month HOA on a $500,000 condo cuts your max loan ~$60,000 because HOA is included in the front-end calculation.
- Including bonus or commission income at face value. Lenders require 2 years of history and average the income. New commission earners may have to use 0% of variable income for the first 2 years.
- Missing student loan IDR payment. Conventional loans use the actual income-driven repayment payment (often $0-$200). FHA uses 0.5% of the balance. On $80,000 in student debt, FHA assumes $400/month vs Conventional's $50. The difference is ~$60,000 in max loan.
28/36 rule at a glance vs other US qualifying frameworks
| Framework | Best for | Key constraint |
|---|---|---|
| 28/36 rule | Conservative buyers; high-savings households | 28% front + 36% back. Lowest max house among frameworks, highest buffer. |
| FHA 31/43 | 580-680 credit; low down payment | MIP for life under 10% down. Forces refi later. |
| VA 41 residual | Eligible vets; 0% down; no PMI | Must have COE. Funding fee 2.15-3.3% rolled in. |
| Conventional QM 43% | 740+ credit; standard 5% down | Above conforming limit goes jumbo. PMI to 80% LTV. |
| Jumbo 38/43 | Loans above $815K (or $1.22M high cost) | 10-20% down; 6-12 months reserves; manual review. |
The formula explained
This calculator applies five chained formulas:
1. Monthly_income = annual_income / 12
2. Front_cap = 0.28 x monthly_income; Back_cap = 0.36 x monthly_income
3. Monthly_TI = (annual_tax + annual_insurance) / 12 + HOA_monthly
4. Max_PI = min(Front_cap, Back_cap - existing_debts) - Monthly_TI
5. Max_loan = Max_PI x ((1+r)^n - 1) / (r x (1+r)^n), where r = rate/12/100, n = years*12
6. Max_house_price = Max_loan / (1 - down_pct/100)
These rules come from the Fannie Mae Selling Guide (current edition) and Freddie Mac Servicing Guide. The 28/36 ratios date to 1970s underwriting practice and have been the conservative US affordability test for four decades. The CFPB Qualified Mortgage rule under Dodd-Frank later allowed back-end DTI up to 43% for safe-harbor approval, but the 28/36 remains the recommended affordability target.
To verify, plug in (150000, 600, 6000, 1800, 0, 6.5, 30, 20): the front-end cap is $3,500 PITI minus $650 tax+insurance = $2,850 max P+I. Loan = $2,850 x [(1.005417^360-1)/(0.005417 x 1.005417^360)] = ~$450,640. Max house = $450,640 / 0.80 = ~$563,300.
Frequently asked questions
What is the 28/36 rule?
The 28/36 rule is the traditional Fannie Mae mortgage qualifying framework. Front-end DTI caps housing payment (PITI plus HOA) at 28% of gross monthly income. Back-end DTI caps total debt (housing plus car loans, student loans, credit cards, child support) at 36%. Both must be met for a conservative qualification; the lower of the two sets your max.
How is front-end DTI different from back-end DTI?
Front-end DTI uses only the housing payment: principal, interest, property taxes, homeowner insurance, HOA and any PMI. Back-end DTI adds every other recurring monthly debt: auto loans, student loans, credit card minimums, child support and personal loans. Most lenders use both ratios to qualify; the lower of the two caps your max loan.
Where does the 28/36 rule come from?
The 28/36 rule traces to Fannie Mae and Freddie Mac underwriting guidelines from the 1970s and 1980s, codified into the Fannie Mae Selling Guide. It became the conventional benchmark for 30-year fixed conforming mortgages. The CFPB Qualified Mortgage rule under Dodd-Frank later allowed back-end DTI up to 43%, but the conservative 28/36 remains the affordability test most personal finance educators recommend.
How does FHA 31/43 differ from 28/36?
FHA uses 31% front-end on housing and 43% back-end on total debt. The looser ratios allow lower-credit borrowers to buy more house but they trigger MIP for the life of the loan if down payment is under 10%. VA loans use a 41% target back-end DTI but switch to residual income (dollars left after debts) as the primary qualifier. Jumbo lenders typically demand 38/43 with 6 to 12 months reserves.
Should I follow 28/36 if my lender will approve me at 43%?
28/36 is a conservative affordability target rather than a regulatory cap. Following it tends to leave more buffer for emergencies, savings and lifestyle. Approval at 43% back-end DTI means you can still qualify, but the higher payment correlates with lower discretionary income, delayed retirement savings and higher hardship default risk if income drops. Run both numbers and decide based on your savings rate and job stability.
Does the 28% front-end include PMI and HOA?
Yes. PITI commonly stands for Principal, Interest, Taxes, Insurance. Lenders also include HOA dues and PMI in the front-end calculation since they are unavoidable monthly housing costs. The total of these five items must stay within 28% of gross monthly income under the traditional 28/36 rule.
What happens if my back-end DTI is over 36%?
Three options: pay down high-balance debts (car loan, credit cards) to drop the back-end ratio under 36%; add a co-borrower whose income lifts the denominator; or switch to FHA or VA where the back-end cap is higher. The cleanest fix is paying off any debt with under 10 months of payments left, since some lenders exclude these from DTI.
How sensitive is my max house price to mortgage rate changes?
Roughly: each 1 percentage point increase in mortgage rate reduces max house price by 9 to 12% for the same DTI. At 6.5% rate the max for $150,000 income is around $480,000 under 28/36. At 7.5% it drops to about $430,000. Buyers in rising-rate cycles often see their pre-approval shrink mid-search.