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:

• 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

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