What is the 28/36 rule for house affordability?

Here’s a short explanation of the 28/36 rule. It’s quite simple and can help you better understand your house affordability.

The 28/36 rule is a guideline that lenders often use to determine how much you can afford to borrow for a mortgage. 

It is based on the idea that your total monthly housing expenses, including your mortgage payment, property taxes, and insurance, should not exceed 28% of your gross monthly income. 

Additionally, your total monthly debts, including your mortgage payment and other debts such as credit card payments, car loans, and student loans, should not exceed 36% of your gross monthly income. Yes, you read it right, the mortgage payment is calculated in both!

Here's an example of how the 28/36 rule might work:

Let's say that you have a gross monthly income of $4,000. 

According to the 28/36 rule, you should not spend more than $1,120 per month on housing expenses (28% of $4,000) and you should not have total monthly debts that exceed $1,440 (36% of $4,000).

If you have other debts, such as credit card payments or a car loan, you'll need to factor those into your total monthly debts.

For example, if you have a $300 car loan payment and a $100 credit card payment, your total monthly debts would be $1,840, which exceeds the 36% limit. In this case, you would need to either reduce your housing expenses or pay off some of your debts in order to meet the 28/36 rule.

The 28/36 rule is just one factor that lenders consider when determining how much you can afford to borrow for a mortgage. Other factors may include your credit score, debt-to-income ratio, and the local housing market. It's important to carefully consider your financial situation and work with a lender or financial advisor to determine how much you can afford to spend on a home.