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What 28/36 means

The front-end ratio says housing costs — principal, interest, taxes, insurance, HOA — should stay under 28 per cent of gross monthly income. The back-end ratio says housing plus all other debt payments should stay under 36 per cent. Someone with significant car or student loan payments is limited by the second rule; someone debt-free is limited by the first. Both are shown so you can see which one is actually binding and why.

Gross income is the wrong denominator for your life

The ratios are defined on gross income because that is what lenders can verify. Your actual capacity depends on take-home pay after tax, retirement contributions and health premiums, which can be 30 per cent lower. A payment at exactly 28 per cent of gross can be 40 per cent of what actually reaches your account — which is why these rules are a ceiling, not a target.

PMI, and the 20 per cent threshold

Conventional loans with less than 20 per cent down usually carry private mortgage insurance, commonly 0.3 to 1.5 per cent of the loan per year. It protects the lender, not you, and it can be removed once you reach sufficient equity. The estimate above uses 0.6 per cent when the down payment falls short of 20 per cent, and drops it entirely at or above that threshold.

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