28 36 Rule Calculator

28/36 Rule Calculator

Use this calculator to determine if your current or proposed housing and debt payments align with the common 28/36 rule, a key guideline for mortgage qualification and financial health.

function calculate2836Rule() { var grossMonthlyIncome = parseFloat(document.getElementById('grossMonthlyIncome').value); var monthlyHousingPayment = parseFloat(document.getElementById('monthlyHousingPayment').value); var otherMonthlyDebtPayments = parseFloat(document.getElementById('otherMonthlyDebtPayments').value); if (isNaN(grossMonthlyIncome) || grossMonthlyIncome <= 0) { alert('Please enter a valid Gross Monthly Income greater than zero.'); return; } if (isNaN(monthlyHousingPayment) || monthlyHousingPayment < 0) { alert('Please enter a valid Monthly Housing Payment.'); return; } if (isNaN(otherMonthlyDebtPayments) || otherMonthlyDebtPayments < 0) { alert('Please enter valid Other Monthly Debt Payments.'); return; } // Calculate 28% rule var maxHousingPayment = grossMonthlyIncome * 0.28; document.getElementById('maxHousingPayment').innerText = '$' + maxHousingPayment.toFixed(2); // Calculate 36% rule var maxTotalDebtPayments = grossMonthlyIncome * 0.36; document.getElementById('maxTotalDebtPayments').innerText = '$' + maxTotalDebtPayments.toFixed(2); // Calculate current ratios var currentHousingRatio = (monthlyHousingPayment / grossMonthlyIncome) * 100; document.getElementById('currentHousingRatio').innerText = currentHousingRatio.toFixed(2) + '%'; var totalCurrentDebtPayments = monthlyHousingPayment + otherMonthlyDebtPayments; var currentTotalDebtRatio = (totalCurrentDebtPayments / grossMonthlyIncome) * 100; document.getElementById('currentTotalDebtRatio').innerText = currentTotalDebtRatio.toFixed(2) + '%'; // Determine compliance status for 28% rule var housingRuleStatusElement = document.getElementById('housingRuleStatus'); if (currentHousingRatio <= 28) { housingRuleStatusElement.innerText = '(Within 28% limit)'; housingRuleStatusElement.style.color = '#28a745'; // Green } else { housingRuleStatusElement.innerText = '(Exceeds 28% limit)'; housingRuleStatusElement.style.color = '#dc3545'; // Red } // Determine compliance status for 36% rule var totalDebtRuleStatusElement = document.getElementById('totalDebtRuleStatus'); if (currentTotalDebtRatio <= 36) { totalDebtRuleStatusElement.innerText = '(Within 36% limit)'; totalDebtRuleStatusElement.style.color = '#28a745'; // Green } else { totalDebtRuleStatusElement.innerText = '(Exceeds 36% limit)'; totalDebtRuleStatusElement.style.color = '#dc3545'; // Red } } // Run calculation on page load with default values window.onload = calculate2836Rule;

Understanding the 28/36 Rule for Financial Health

The 28/36 rule is a widely used guideline by lenders, especially in the mortgage industry, to assess a borrower's ability to comfortably afford a home loan. It's a simple yet powerful tool for both lenders and individuals to gauge financial health and prevent over-indebtedness. While not a strict law, adhering to this rule significantly increases your chances of mortgage approval and helps maintain a stable financial future.

What is the 28/36 Rule?

The rule consists of two key percentages:

• 28% Rule (Front-End Ratio): Your total monthly housing expenses should not exceed 28% of your gross monthly income. Gross monthly income is your income before taxes and other deductions.
• 36% Rule (Back-End Ratio): Your total monthly debt payments (including housing expenses and all other recurring debts) should not exceed 36% of your gross monthly income.

Breaking Down the Components:

To effectively use the 28/36 rule, it's crucial to understand what counts towards each part of the calculation:

Gross Monthly Income

This is your total income before any deductions like taxes, 401(k) contributions, or health insurance premiums. If you're salaried, it's usually straightforward. For hourly workers, it's your hourly wage multiplied by hours worked per week, then by 4, or your annual gross income divided by 12. For self-employed individuals, it's typically your net business income before personal taxes.

Monthly Housing Payment (PITI + HOA)

This is often referred to as PITI + HOA, and it includes:

• Principal: The portion of your mortgage payment that goes towards reducing the loan balance.
• Interest: The cost of borrowing money from the lender.
• Taxes: Property taxes, usually divided by 12 and paid monthly into an escrow account.
• Insurance: Homeowner's insurance premiums, also often paid monthly into escrow.
• HOA Fees: Homeowners Association fees, if applicable to your property.

Other Monthly Debt Payments

This category includes all other recurring debt obligations you have each month. Common examples are:

• Car loan payments
• Student loan payments
• Minimum credit card payments (not your full balance, just the minimum due)
• Personal loan payments
• Alimony or child support payments

It generally does NOT include utility bills, phone bills, groceries, or other living expenses, as these are not considered "debt" by lenders for this calculation.

Why is the 28/36 Rule Important?

• Mortgage Qualification: Lenders use these ratios to determine how much they are willing to lend you. Staying within these limits signals to lenders that you are a responsible borrower with a manageable debt load.
• Financial Stability: For individuals, it's a practical benchmark for financial health. Exceeding these ratios can indicate that too much of your income is tied up in debt, leaving little room for savings, emergencies, or discretionary spending.
• Preventing Over-Indebtedness: Following the rule helps prevent you from taking on a mortgage or other debts that could strain your finances, especially if unexpected expenses arise.

Example Scenario:

Let's consider a household with a gross monthly income of $6,000.

• 28% Rule: Maximum recommended monthly housing payment = $6,000 * 0.28 = $1,680.
• 36% Rule: Maximum recommended total monthly debt payments = $6,000 * 0.36 = $2,160.

If this household has a proposed monthly housing payment of $1,500 and other monthly debt payments of $400:

• Current Housing Ratio: ($1,500 / $6,000) * 100 = 25%. This is within the 28% limit.
• Current Total Debt Ratio: (($1,500 + $400) / $6,000) * 100 = ($1,900 / $6,000) * 100 = 31.67%. This is within the 36% limit.

In this scenario, the household would likely be considered a good candidate for a mortgage based on the 28/36 rule.

Tips for Meeting the 28/36 Rule:

• Increase Your Income: Explore opportunities for raises, bonuses, or a side hustle.
• Reduce Debt: Pay down credit card balances, car loans, or student loans before applying for a mortgage.
• Lower Housing Costs: Consider a less expensive home, a larger down payment (to reduce the principal and interest), or look for areas with lower property taxes or HOA fees.
• Improve Credit Score: A better credit score can lead to a lower interest rate, reducing your monthly housing payment.

While the 28/36 rule is a valuable guideline, remember that it's just one factor lenders consider. Your credit score, savings, job stability, and overall financial history also play significant roles in mortgage approval.