The 28% Rule, Explained

The 28% rule says your housing payment should not exceed 28% of your gross monthly income. It is the single most quoted number in home buying, and for good reason — it is simple, it is defensible, and it works. Here is exactly where it comes from, how to apply it, and when you should bend it.

Where the 28% rule comes from

The rule traces back to the 28/36 standard that conventional mortgage underwriting adopted decades ago: 28% of gross income for housing, and 36% for all debt combined. Government programs like the FHA later stretched the debt side to 43% or more, but the 28% housing figure stuck as the classic benchmark.

It was never handed down by law — it is a rule of thumb built from decades of default data. Borrowers who stay near 28% default at much lower rates than those pushed toward 36% or 43%. The number stuck because it predicts real outcomes, not because anyone mandated it.

How to apply it

The math is one multiplication or one division:

• Salary to payment: multiply annual salary by 0.28, then divide by 12. A $100,000 salary allows about $2,333 a month for housing.
• Payment to salary: divide a monthly payment by 0.28. A $2,500 payment needs about $107,000 a year in income.

The "housing payment" is your full PITI — principal, interest, property tax and insurance — not just the loan. That distinction matters, because tax and insurance can add $500 to $1,000 a month on top of principal and interest.

Our calculator runs this automatically: every result shows the "income needed" under the 28% rule, so you can see at a glance whether a home price fits your salary.

A worked example

Take a $120,000 household income:

1. Annual housing budget: $120,000 × 0.28 = $33,600
2. Monthly housing budget: $33,600 ÷ 12 = $2,800
3. Split it up: if principal and interest run $2,200, and tax and insurance add $600, the total $2,800 is exactly at the 28% line

Now work it backward: a home whose PITI is $3,000 a month requires $3,000 × 12 ÷ 0.28 = about $128,600 a year in income. If your household earns $100,000, that home is roughly $28,000 of income — or a full salary bump — out of reach.

28% of what: gross vs net

The rule uses gross income — the number on your pay stub before taxes and deductions. That is what lenders use, because it is consistent and verifiable.

The catch: you do not spend gross income, you spend net. A $100,000 gross salary might leave $70,000 after taxes, insurance and retirement contributions. Applying 28% to gross gives $2,333 a month; the same 28% applied to net gives only $1,633. The gross version is the classic standard, but the net version is the one that reflects your actual breathing room. Many planners suggest a hybrid: 28% of gross as the ceiling, with a personal target closer to 25% of net.

When 28% is too much

The rule is a ceiling, not a target, and there are situations where hitting it is genuinely risky:

• High-tax states. Property tax alone can be 2% of home value in New Jersey or Illinois. More of your payment is "stuck" in tax, leaving less flexibility.
• Lower incomes. At $50,000 a year, 28% is $1,167 a month — and after fixed costs like food and transportation, that leaves very little slack.
• Existing debt. A car payment and student loans consume the gap between 28% and the 36% back-end cap. If other debt already eats 10%, your housing should sit well below 28%.
• Variable income. Commission or freelance income swings. A 28% payment is fine in a good month and crushing in a bad one.

In these cases, staying at 20% to 25% is the smarter target. The rule's whole point is breathing room — if 28% leaves none, use a lower number.

When 28% is too little

In expensive coastal markets — San Francisco, New York, Seattle — staying under 28% of gross can price you out of the market entirely. A family earning $150,000 in the Bay Area would be capped near $3,500 a month, which buys very little there.

This is not a reason to blow through the rule; it is a signal about the market. If the only way to buy is to spend 35% or 40% of income, the honest read is that renting may be the better financial move in that area — or that you need a larger down payment, a higher income, or a longer search. Over-leveraging to force the purchase is how buyers get trapped.

The 28/36 rule vs the 28% rule

People often collapse the two. The 28% rule is only the housing half. The fuller 28/36 rule adds a second limit: total monthly debt — housing plus everything else — should stay under 36% of gross income. The extra 8% is meant for car loans, student debt and credit cards.

In practice, that 8% is thin. A $100,000 earner has $8,000 a year, or about $667 a month, for all non-housing debt. One car payment plus a student loan can consume it entirely, which is why your other debts directly reduce how much house you should buy.

How to use the rule without a calculator

A fast mental shortcut: for every $1,000 of monthly housing payment, you need about $43,000 of annual income ($1,000 × 12 ÷ 0.28). So a $2,000 payment needs roughly $86,000, a $3,000 payment needs about $129,000, and a $4,000 payment needs about $171,000. Multiply or divide from there and you can sanity-check any home price in your head.

Frequently asked questions

Is the 28% rule on gross or net income?

Gross. It is the standard used in underwriting. For a more conservative personal target, apply 25% to net income instead.

Does the 28% include property tax and insurance?

Yes. The 28% applies to your full PITI payment — principal, interest, taxes and insurance — not just the loan.

What if I have no other debt — can I go above 28%?

You can, but it is riskier. The rule is a risk benchmark, not a law. A debt-free buyer has more slack, but that slack also covers emergencies, savings and maintenance.

Why do some lenders approve more than 28%?

Lenders use a 43% to 50% total debt limit in some programs, which permits housing well above 28%. Their job is to lend profitably; the 28% rule exists to protect your budget, not theirs.

See how your salary translates to a home price under the 28% rule with our affordability calculators.