Find out how much home you can afford using the 28/36 rule
The standard rule is to spend no more than 28% of gross monthly income on housing costs. On a $6,000 monthly gross income the maximum monthly mortgage payment is $1,680. With a 20% down payment and 7% interest rate that payment supports a home price of approximately $245,000. Most financial advisors recommend a more conservative 25% of take-home pay for housing.
Home affordability is determined by income, existing debts, down payment size and current mortgage rates. Lenders use the debt-to-income ratio where total monthly debts including the mortgage should not exceed 43% of gross income. This calculator shows the maximum home price you can afford under both the standard 28% rule and the more conservative 25% of take-home guideline.
In 1990, the median home was $149,800 and median income was $29,943 — a ratio of 5x. Today the median home is $420,000 with median income ~$58,000 — a ratio of 7.2x. Affordability has declined significantly.
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For educational purposes only. Not financial advice. The 28/36 rule is a guideline; lenders use various criteria. Consult a mortgage professional.