The 28/36 rule lays out how much debt you can have and still qualify for most mortgages (2024)

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• The 28/36 rule refers how much debt you can have and still be approved for a conforming mortgage.
• Lenders prefer you spend 28% or less of your gross monthly income on housing expenses.
• Ideally, you'd spend 36% or less of your gross monthly income on all debts, but there are exceptions.

What is the 28/36 rule, and how does it affect your mortgage?

The 28/36 rule refers to how much debt you can take on and still be approved for a conforming mortgage, which is what you may think of as a "normal mortgage" that isn't backed by the government.

According to the rule, you should only spend 28% or less of your gross monthly income on housing expenses. You should also only spend 36% of your gross monthly income on all your debts, from credit cards to car loans to child support. (Remember that gross monthly income refers to the income you earn before taxes are taken out.)

You might have trouble getting a conforming mortgage if either of the following is true: Taking out a mortgage would cause you to spend more than 28% of your gross income on housing expenses, or the amount would make you spend more than 36% of your gross income on total monthly debt payments.

Keep in mind, passing the 28/36 rule makes you a competitive buyer. You'd probably be approved for the amount you want to borrow and receive a good interest rate. But if taking out a mortgage would make you take on more debt than you'd like, many lenders will still approve you for a mortgage.

The 28% front-end ratio

You may hear your lender use the term "front-end ratio." This is the ratio of your monthly housing expenses versus your monthly gross income, and according to the 28/36 rule, the ratio should ideally be 28% or less.

The front-end ratio doesn't just refer to your mortgage payments. It refers to all of the following:

• Principal: This is the amount you borrow for your mortgage.
• Interest: The lender charges you interest for borrowing money, and you'll pay money toward interest every month as part of your mortgage payment.
• Property taxes: Your property taxes will depend on your home value and where you live in the US. You could end up paying hundreds each month.
• Insurance: You'll pay for homeowners insurance, and you might have additional insurance policies to cover things like floods or earthquakes.
• Homeowner's association dues: If you live in a neighborhood with a homeowner's association, your monthly dues factor into your front-end ratio.

Keep in mind that utility bills are not part of your front-end ratio.

Let's say your gross income is $5,000 per month. You pay $1,000 toward the principal and interest, $150 toward property taxes, $100 toward homeowners insurance, and $50 in HOA dues. Added together, you're paying $1,300 per month toward your home.

Divide $1,300 by $5,000 for a total of 0.26. Your front-end-ratio is 26%.

The 36% back-end ratio

You also may hear the term "back-end ratio" in the mortgage lending process. It could also be called the "debt-to-income ratio."

This is the ratio of your total monthly debt payments compared to your gross monthly income. According to the 28/36 rule, you'd ideally want your back-end ratio to be 36% or less.

The back-end ratio is important because even if your housing payments come to less than 28% of your gross income, you might have other debts that make you a higher lending risk.

The back-end ratio refers to housing payments along with payments toward credit cards, student loans, car loans, personal loans, alimony, and child support.

Maybe you're paying $1,300 toward your house each month, $50 toward your credit cards, and $250 toward student loans. Your monthly debt payments come to $1,600 total.

Divide $1,600 by your gross monthly income ($5,000) to get 0.32. Your back-end ratio is 32%.

Exceptions to the 28/36 rule

If you have too much debt to pass the 28/36 test, don't throw in the towel just yet. There are some exceptions.

A lender may still approve your application if other parts of your financial profile are exemplary. Maybe you have an excellent credit scoreor more than 20% for a down payment.

You could also still be approved with higher debt ratios, but just pay a higher rate than you would if you had less debt.

You should also remember that the 28/36 rule mainly applies to conforming mortgages. If you qualify for a government-backed mortgage through the FHA, VA, or USDA, a lender could approve your application with a higher ratio.

Getting a government-backed mortgage provides more leniency (and VA loans don't consider front-end ratios at all). Just consider whether you qualify for a government-backed mortgage and are comfortable with the terms.

How to get a mortgage when you have debt

Maybe you have too much debt to pass the 28/36 test, but you still want a great rate on a conforming mortgage. There are two main ways to get around this: Improve your ratio, or improve other parts of your financial portfolio. Here are tips for accomplishing both.

Pay down debts

If you have a relatively small balance left on a car loan or credit card, for example, consider paying it off in full. This way, your monthly payment toward this loan will disappear completely.

You may also consider refinancing a loan for lower monthly payments. Just be sure to understand the terms of refinancing beforehand to decide if it's the best financial move.

Look for ways to increase income

Earning more money is easier said than done, but you want to cover all your bases. If you think you deserve a raise, it may be a good time to talk to your boss about the possibility. Or consider getting an additional part-time or freelance job.

Improve your credit score

If you have debt, a mortgage lender may still approve your application if you have a very good or excellent credit score.

Payment history is the most important factor in your credit score, so make sure you're paying all your bills on time. You can also request a credit report from one of the three credit bureaus (TransUnion, Equifax, and Experian) to check for any errors. If you find you've been penalized unfairly, dispute an error with the bureau.

Save for a bigger down payment

A lender may also approve your application if you have more than the minimum requirement for a down payment. The minimum down payment amount will depend on which type of mortgage you get.

Mortgage rates should stay low for the foreseeable future, so you probably have time to save more for a down payment without worrying about missing out on a good rate. This could also give you time to work on other parts of your financial portfolio, such as increasing your credit score or inching closer to passing the 28/36 test.

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