Why the 28/36 Rule is Outdated (And What to Use Instead)
If you've started researching how much house you can afford, you've probably encountered the "28/36 rule." It sounds authoritative, like a formula that will give you the right answer. But here's the uncomfortable truth: the 28/36 rule was designed for a world that no longer exists, and following it blindly could leave you either house poor or missing out on a home you can actually afford.
What is the 28/36 Rule?
The 28/36 rule is a guideline that says:
- 28% of your gross (pre-tax) income should go toward housing costs
- 36% of your gross income should cover all debt payments (housing + car + student loans + credit cards)
This rule became popular in the 1980s when lenders needed a simple way to assess mortgage applications. It was never meant to be a personal finance tool — it was a lending guideline designed to minimize default risk for banks.
Why the 28/36 Rule Fails Modern Homebuyers
Problem #1: It Uses Gross Income, Not Take-Home Pay
This is the biggest flaw. You don't spend your gross income — you spend what hits your bank account after taxes, 401(k) contributions, health insurance, and other deductions.
Consider someone earning $100,000 per year:
| Calculation Method | Monthly Housing Budget |
|---|---|
| 28% of gross ($8,333/mo) | $2,333 |
| 35% of take-home (~$5,800/mo) | $2,030 |
The gross income calculation says you can afford $300 more per month than you actually can. Over 30 years, that's a significant overestimate that could lead to financial stress.
The hidden trap: Someone following the 28/36 rule might think they're being conservative, when in reality they're spending 40%+ of their actual take-home pay on housing.
Problem #2: It Ignores Regional Cost of Living
$2,000 left over after housing goes much further in Oklahoma City than in San Francisco. The 28/36 rule treats all dollars equally, but your groceries, childcare, transportation, and healthcare costs vary dramatically by location.
Someone in a high cost-of-living area might need to spend less than 28% on housing just to afford basic necessities. Someone in a low-cost area might comfortably spend more.
Problem #3: It Doesn't Account for Modern Expenses
When the 28/36 rule was created:
- Student loan debt wasn't the crisis it is today
- Healthcare costs were a fraction of what they are now
- Childcare costs hadn't skyrocketed
- People didn't have streaming services, phone plans, and internet bills
The 36% debt limit assumes your non-housing financial obligations look like they did 40 years ago. For many people today, especially those with student loans, that assumption is wildly off.
Problem #4: It Tells You Nothing About What's Left
The most important question isn't "what percentage goes to housing?" It's "what will I have left to live on?"
Two people can both spend exactly 28% of their gross income on housing and have completely different financial situations:
- Person A: $150k income, $3,500 housing, $6,000 left for everything else
- Person B: $60k income, $1,400 housing, $1,800 left for everything else
Person B is following the "rule" but might be one car repair away from financial trouble.
What to Use Instead
Instead of arbitrary percentages of gross income, focus on these principles:
The Real Affordability Test: After paying your mortgage, taxes, insurance, utilities, maintenance, debts, and estimated living costs, do you have enough left for savings, emergencies, and the life you want to live?
Better Guidelines for Take-Home Pay
If you want percentage-based guidelines, use your take-home pay instead of gross income:
| Housing % of Take-Home | What It Means |
|---|---|
| Under 30% | Comfortable — plenty of room for savings, lifestyle, and unexpected costs |
| 30-40% | Manageable — works if you're disciplined, but less flexibility |
| 40-50% | Stretching — possible, but you'll feel the squeeze on other spending |
| Over 50% | Risky — you're likely "house poor" with little margin for error |
The Questions That Actually Matter
Rather than asking "does this fit the 28/36 rule?" ask yourself:
- What will I have left each month after all housing costs? (Not just the mortgage — include taxes, insurance, utilities, maintenance, and HOA)
- Can I cover my actual living expenses with what's left? (Groceries, transportation, healthcare, childcare, subscriptions)
- Will I still be able to save for retirement and emergencies?
- What happens if I lose my job for 3-6 months?
- Am I sacrificing things that matter to me just to own this home?
If you can answer these questions positively, you've found a home you can actually afford — regardless of what any rule says.
The Bottom Line
The 28/36 rule isn't useless, but it's a blunt instrument from a different era. It was designed to help banks avoid bad loans, not to help you build a healthy financial life.
Real affordability is personal. It depends on your actual take-home pay, your location, your lifestyle, your other financial obligations, and your goals. No simple percentage can capture all of that.
The best approach? Calculate what you'll actually have left after housing, compare it to your actual expenses, and make sure there's enough margin for both the expected and unexpected parts of life.
See What You Can Actually Afford
Our calculator uses your take-home pay, estimates living costs for your area, and shows you what's actually left after housing.
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