28/36 Rule Calculator

Understanding the 28/36 Mortgage Rule

The 28/36 rule is a widely used financial guideline that lenders use to assess a borrower's debt-to-income (DTI) ratio and determine how much home loan they can safely qualify for. According to this rule, a household should spend no more than 28% of its gross monthly income on housing expenses, and no more than 36% on total debt payments.

Understanding these two ratios helps home buyers establish a realistic budget before applying for a mortgage:

1. Front-End DTI Ratio (28% Limit)

The front-end ratio represents the percentage of your monthly gross income that goes toward housing costs. These costs are often aggregated under the acronym PITI (use our PITI Calculator to break down housing costs, or check your overall buying power with our House Affordability Calculator):

• Principal: The amount that goes toward paying off the loan balance.
• Interest: The cost of borrowing the principal amount.
• Taxes: Monthly property tax payments.
• Insurance: Homeowners insurance (and private mortgage insurance if applicable).

$$\text{Front-End DTI} = \left( \frac{\text{Monthly PITI}}{\text{Gross Monthly Income}} \right) \times 100$$

2. Back-End DTI Ratio (36% Limit)

The back-end ratio includes your housing costs (PITI) plus all other monthly recurring debt obligations, such as:

• Credit card minimum payments
• Car loans
• Student loans
• Personal loans or child support

$$\text{Back-End DTI} = \left( \frac{\text{Monthly PITI} + \text{Other Debts}}{\text{Gross Monthly Income}} \right) \times 100$$