What is the 28/36 rule and how can it help you get approved for a mortgage? (2024)

When applying for a mortgage, homebuyers need to figure out how much they can afford. If you have no idea where to start, the "28/36" rule can help you (and lenders) arrive at a ballpark figure. Below, CNBC Select looks into this real estate rule of thumb to see how it can help you settle on the right mortgage.

According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts.

Housing costs can include:

• Your monthly mortgage payment
• Homeowners Insurance
• Private mortgage insurance
• HOA fees and other payments

Other forms of debt besides your mortgage which factor into the "36" portion of the rule include credit card bills, auto loans, student loans, personal loans, alimony and child support payments.

If your gross monthly income is $6,000, the 28/36 rule says you can safely spend up to $1,680 on housing and up to $2,160 on all of your bills.

When you apply for a mortgage, the lender tries to answer one question: Are you likely to repay the loan? Your debt-to-income ratio (DTI) is one piece of information lenders use to reach their decision, and the 28/36 rule's value lies in making sure you have a DTI that most lenders would consider acceptable.

That being said, it's possible to get a mortgage even if you exceed the 28/36 framework. "It's certainly not a hard and fast rule and not even a guideline," says Laurie Goodman, an Institute Fellow at the Urban Institute and Founder of the Housing Finance Policy Center. "If your credit score is high and you're putting down a lot of money, you might be able to get away with having a higher DTI," she says.

Each lender has its own system for evaluating your risk as a borrower, and your DTI tends to lag in importance compared to your credit score and the size of the mortgage compared to the home's value, for example. "The takeaway here would be that there are no absolute cutoffs in the mortgage market," Goodman says.

Some lenders are more flexible with their requirements. Navy Federal Credit Union doesn't require a minimum credit score, for example. Instead, it works with applicants to find a mortgage that's right for them.

If you find that you're spending more on repaying debt than the rule suggests, try to reduce your debt load before applying for a mortgage.

There are many ways to pay down debt quickly. The snowball method involves paying off your smallest balance first and working your way up to the largest balance. With the avalanche method, you pay off the debt with the highest interest rate first and work your way down to the lowest interest rate.

Your debt load isn't the only criteria that lenders use to judge whether you're able to take on a mortgage debt. Your credit score is one of the largest indicators lenders use to approve borrowers. A higher credit score indicates that the borrower is less likely to default than someone with a lower credit score.

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