Affordability (28% Rule)
Recommended maximum housing payment from gross income.
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Example
Income $8000/mo: M_max = $2240
How it works
The 28% rule is a lender-style budgeting guideline that says your housing payment should take up no more than 28% of your gross monthly income. It is based on the idea that if housing costs stay below this share, you are more likely to have enough money left for taxes, food, transportation, debt payments, and savings. It is a planning benchmark, not a hard law, so actual affordability can vary with debts, interest rates, and local living costs.
When to use it
Use this formula when estimating a safe monthly mortgage or rent budget before house hunting. It is also useful for comparing how much home you can likely afford at different income levels.
Worked example, step by step
Step 1: Find gross monthly income: I = $5,500 Step 2: Multiply by 0.28: M_max = 0.28 × 5,500 Step 3: Calculate: M_max = 1,540 Final answer: the recommended maximum housing payment is $1,540 per month.
Common mistakes to avoid
- Using take-home pay instead of gross monthly income
- Treating the result as the full cost of homeownership when property taxes, insurance, and HOA fees may also need to fit in
- Assuming 28% is a strict approval rule for every lender or every borrower
Did You Know?
The classic 28/36 rule caps housing at 28% of income and all debts at 36% — a lender's rule of thumb.
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