The 28/36 Rule
Lenders use the 28/36 DTI rule to determine how much you can borrow. Your housing costs should not exceed 28% of gross monthly income, and total debts should not exceed 36%.
On an $80,000 salary, your gross monthly income is $6,667. That means your maximum monthly housing payment is $1,867 (28% rule).
What This Means for Home Prices
Assuming a 6.5% interest rate, 30-year term, and 20% down payment:
- Max home price: ~$380,000
- Conservative target: ~$320,000
- Monthly payment: ~$1,800 (including taxes and insurance)
If you have significant debts (car loans, student loans), your max will be lower due to the 36% back-end ratio.
Factors That Affect Affordability
- Down payment: Higher down payment = more buying power and no PMI
- Interest rate: Every 0.5% rate increase reduces buying power by ~$25,000
- Existing debts: Car payments, student loans, and credit cards reduce your DTI budget
- Property taxes: Vary dramatically by state (0.3% in Hawaii to 2.5% in New Jersey)
Calculate Your Number
Every situation is different. Use our Home Affordability Calculator to get a personalized estimate based on your exact income, debts, and down payment. You can also compare renting vs buying to see which makes more financial sense for your situation.
Written by OpenTools Pro
Sharing expertise on digital growth, business automation, and software engineering. We build tools that help you succeed.
More from OpenTools Pro