Formula
The payment guide is the lower of 28% of gross monthly income and 36% of income minus other debt payments. The home price is the highest dollar amount whose principal, interest, tax, and insurance fit under that guide.
Payment guide = min(28% of income, 36% of income − other debts)
Property tax is a percent of price. Insurance is the annual dollar amount divided by 12.
Assumptions
- The 28/36 shares are a planning guide, not a lender’s approval rule.
- The rate, tax rate, and insurance bill stay fixed.
- Mortgage insurance and HOA dues are not included.
Worked example
With $8,000.00 monthly income and $500.00 of other debts, the guide supports about $349,896.00 at 6.5% for 30 years with 20% down.
Input definitions
- 28% guide
- Housing payment at or below 28% of gross monthly income.
- 36% guide
- Housing plus the other debts you enter at or below 36% of gross monthly income.
Limitations
This is not a preapproval. Lenders use credit, reserves, mortgage insurance, and their own ratios. The price is rounded to the nearest dollar that still fits.
Questions
Why did the price stop where it did?
A higher price would push principal, interest, tax, and insurance above the lower of the two income guides.
Should I use take-home pay?
Use gross income, before taxes. The 28/36 guide is defined on gross income.