The 28/36 rule is a guideline used by mortgage lenders to determine how much house you can afford. It states that you should spend no more than 28% of your gross monthly income on housing costs and no more than 36% on all of your debt combined.

What is the 28/36 Rule?

The 28/36 rule is based on two ratios: the front-end ratio and the back-end ratio. The front-end ratio is the maximum percentage of your gross monthly income that you should spend on housing costs, which include principal, interest, taxes, and insurance. The back-end ratio is the maximum percentage of your gross monthly income that you should spend on all of your debt, including housing costs.

While the 28/36 rule is not a law, it is a guideline that lenders use to evaluate a borrower’s ability to repay a mortgage. However, many lenders will allow a debt-to-income ratio of up to 45% on conventional loans, and there may be some flexibility in the ratios for FHA, VA, and USDA loans.

Applying the 28/36 Rule in Today’s Market

In today’s high-priced market, it may not be realistic to limit your housing spend to just 28% of your income. The 28/36 rule does not account for other expenses, such as childcare, groceries, and transportation, which can be significant. Additionally, the rule does not account for your credit score, which can affect the interest rate you qualify for and the amount you can borrow.

To improve your debt-to-income ratio, you can pay down debt, grow your income, or consider a less expensive home or a more affordable location. A local real estate agent can help you find options that fit your needs and budget, and you may be eligible for local or state down payment assistance programs to help you pay more money upfront.

Original reporting: Texarkana Gazette — read the source article.