The 28/36 Rule
Back-end ratio: Total debt payments ≤ 36% of gross monthly income
Max housing payment = Gross monthly income × 0.28
What Lenders Consider
| Factor | Typical Requirement |
|---|---|
| Debt-to-Income (DTI) | ≤ 43% back-end (FHA allows up to 50%) |
| Credit score (conventional) | 620+ (740+ for best rates) |
| Down payment (conventional) | 3–20% (20% avoids PMI) |
| Down payment (FHA) | 3.5% (with 580+ credit score) |
| Employment history | 2+ years consistent employment |
| Cash reserves | 2–6 months PITI payments |
Frequently Asked Questions
What is included in PITI?
PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a monthly mortgage payment. Principal and interest are determined by loan amount and rate. Property taxes and homeowner's insurance are typically escrowed and collected monthly by the lender. PMI (private mortgage insurance) may also be included if down payment is under 20%.
Should I maximize what I can afford?
Not necessarily. Lender maximums are the ceiling, not a recommendation. Many financial advisors suggest keeping housing at 25% or less of take-home pay (not gross income) to maintain budget flexibility. Being "house poor" — owning a home that strains the budget — reduces ability to save, invest, and handle unexpected expenses.
What is PMI and how do I avoid it?
PMI (Private Mortgage Insurance) protects the lender when your down payment is under 20%. It typically costs 0.5–1.5% of the loan per year, added to your monthly payment. Avoid PMI by putting 20%+ down, or request cancellation once your equity reaches 20% (required by law when equity hits 22% on conventional loans).