When you’re buying a home, one of the biggest financial decisions you’ll make is figuring out how much mortgage you can truly afford.
Mortgage affordability is about how much you can borrow and repay without straining your budget, and the 28% rule offers a simple guideline to help ensure your mortgage stays within reach.
But given the climbing real estate prices and high interest rates in today’s housing market, is the 28% rule still relevant?
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
What is the 28% rule?
(Image credit: Getty Images)
The 28% rule is a common mortgage guideline used to gauge affordability. It offers a straightforward way to set a housing budget and avoid becoming overwhelmed by payments that outpace your income.
The rule comes from lending data showing that borrowers who keep housing costs at or below 28% of their gross income are more likely to stay on track with their mortgages.
Under the 28% rule, your monthly mortgage payment — including principal, interest, taxes and insurance — should not exceed 28% of your gross monthly income, which is your income before taxes or other deductions.
For example, if you earn $8,000 a month, your total housing costs should be no more than $2,240.
Does the 28% rule still work?
In today’s housing market, rising costs make the 28% rule harder to follow. In the second quarter of 2025, the median U.S. home price was $410,800, up from $317,100 in the same quarter of 2020, according to the Federal Reserve Bank of St. Louis. Mortgage rates are elevated, too — the average 30-year fixed rate stood at 6.58% as of August 21, 2025.
Homeowners’ insurance has also climbed as property values rise and natural disasters become more frequent. The Hartford reports the average premium now costs $2,397 per year, or about $200 per month.
All of these factors can push housing expenses beyond 28% of gross income, but aiming to stay near that threshold is still wise. Over time, property taxes and insurance are likely to increase, and if your mortgage already exceeds the 28% mark, keeping up with future costs could become difficult — especially if your income doesn’t rise at the same pace.
What to consider when deciding how much mortgage you can afford
The 28% rule may feel restrictive when shopping for a home, but several factors can improve affordability. Your credit score directly affects your mortgage rate, so building strong credit — by paying bills on time and keeping balances low — can help you secure better terms.
A larger down payment also makes a difference. Putting more down reduces your loan balance, lowers interest costs over time and strengthens your offer in a competitive market.
It also pays to shop around for homeowners’ insurance. Premiums vary widely by company, so compare quotes while making sure coverage limits and deductibles fit your needs. Choosing a higher deductible can lower your monthly cost, but be sure you have that amount set aside in savings if you ever need to file a claim.
Why the 28% rule still matters when buying a home
Buying a home you can truly afford isn’t easy, but the 28% rule offers a safeguard against taking on more than your budget can handle.
Overspending on a mortgage can create years of financial strain and leave little room for unexpected repairs or other expenses. As you plan your purchase, keeping the 28% rule in mind can help ensure your home is a source of stability — not stress.
Quickly compare some of today’s best home insurance rates with the tool below, powered by Bankrate:
