The most widely-used guideline for home affordability — what it means, how it works, and its limits.
28% front-end: your monthly housing costs (mortgage principal+interest, property tax, home insurance, HOA) should not exceed 28% of your gross monthly income.
36% back-end: all monthly debt payments (housing + car loans + student loans + credit cards + other) should not exceed 36% of your gross monthly income.
Monthly gross income: $8,333. Maximum housing payment (28%): $2,333/month. Maximum total debt payments (36%): $3,000/month. If you have $650/month in car and student loan payments, your maximum housing payment under the 36% rule is $3,000 − $650 = $2,350/month.
It's a gross income rule — before tax. Your actual take-home is 25-35% lower. It doesn't include future expenses like childcare, retirement savings, or lifestyle costs. And it doesn't adjust for high cost-of-living areas where housing inherently consumes more income.
Many financial planners suggest limiting housing to 25-28% of take-home (not gross) pay. This is more conservative but leaves more room for saving and other expenses. The calculator uses 28% of gross for the conservative estimate, which aligns with traditional lending guidelines.
See both the conservative and lender-maximum estimates for your situation.