How Much House Can I Afford? The 28/36 Rule

There are many factors that go into making the decision to buy a home. It’s a substantial financial step, whether it’s your first or fifth home, and your first home is a milestone in every adult’s life. The first step toward home ownership is deciding that buying is right for you vs. renting. Once you’ve set your mind on buying a home, finding out just what you can afford is next.

There’s a common rule in lending called the 28/36 rule, which is essentially a common-sense rule of thumb for figuring out how much debt a person or household should take on. The rule states that your total housing expenses each month shouldn’t exceed 28% of gross income, and total debts shouldn’t exceed 36% of gross income—which includes your mortgage, student loan debt, car loans, etc.

Using the 28/36 rule, you can get ballpark idea of the kind of home you can afford and begin making plans accordingly. Whether you’ve got some saving to do, or you’re pleasantly surprised at how much house you can afford, it’s a helpful piece to work toward buying a home.

The 28/36 rule is a good place to start, but there are a lot of different pieces that factor into how much house you can afford, such as using a physician loan for your home. As with all substantial financial decisions, reviewing the situation with your financial advisor is the best bet. They can look at your plan and give you more practical idea of whether buying a home is in line with your plan.

Curious if buying a home can fit in your current financial plan?

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