Question 1

What is the 28/36 rule for mortgages?

Accepted Answer

The 28/36 rule says your housing costs (mortgage, taxes, insurance) should not exceed 28% of gross monthly income (front-end ratio), and total monthly debt payments should not exceed 36% of gross monthly income (back-end DTI ratio).

Question 2

How is the maximum home price calculated?

Accepted Answer

Lenders use two limits: (1) 28% of gross monthly income for housing, and (2) 36% of gross monthly income minus existing monthly debts. The lower limit determines the maximum monthly mortgage payment, which is converted to a maximum loan amount via the amortization formula. The down payment is then added to get maximum home price.

Question 3

What is a debt-to-income ratio (DTI)?

Accepted Answer

DTI is your total monthly debt payments divided by gross monthly income, expressed as a percentage. Below 28% is excellent; 28–36% is good; 36–43% is risky; above 43% makes mortgage approval difficult with most lenders.

Question 4

How much down payment is needed to buy a house?

Accepted Answer

Conventional mortgages typically require 5–20% down. Putting 20% down avoids private mortgage insurance (PMI) and lowers monthly payments. FHA loans allow as little as 3.5% down but require mortgage insurance premiums (MIP).