Understanding the 28/36 Utah Mortgage Rule

How much house can you afford to buy? The answer may be found by examining the 28/36 mortgage rule.

According to the rule, you should spend no more than 28 percent of your gross monthly income on housing costs. In addition, no more than 36 percent of what you make should go toward debts. Lenders look to the 28/36 rule when assessing whether or not a borrower has the ability to afford a mortgage. Here’s what you need to know if you’re in need of financing to buy a home.

Do I qualify for a mortgage

How the 28/36 Rule Affects Mortgage Approval

Lenders will consider your credit score, income, debt-to-income ratio and a host of other factors in determining whether to approve your mortgage application. But, the 28/36 rule plays a major role.

The idea behind the 28/36 mortgage rule is that it can be used to determine an applicant’s financial health and how much debt they can safely take on. Anyone who doesn’t fall within the parameters of the rule is thought to be more likely to default on a loan. Some lenders may relax the requirements for those with high credit scores, but you can’t count on that happening.

How Much House Can You Afford?

To figure out if you qualify for a mortgage under the 28/36 rule, you’ll need to start with your income.

Let’s say that you bring home $5,000 every month. According to the rule, you’ll be able to budget up to 28 percent of that – or $1,400 – for your monthly mortgage payment and housing expenses. These expenses include your property taxes, insurance payments and any homeowners association or condo fees.

As for your debts, meeting the requirements of the mortgage rule would mean that the total of your recurring payments can be no more than 36 percent of your $5,000 in income. This equals $1,800, which after subtracting the $1,400 mortgage and housing costs, leaves just $400 in the budget for debt repayments. If your monthly expenses total more than that, you might need to reconsider how much house you can afford.

Can You Qualify for a Mortgage?

FHA home loans have less stringent eligibility requirements, and you may qualify for financing through the Federal Housing Administration without meeting the 28/36 mortgage rule. If that’s not an option, you can try one of the following strategies to qualify for a mortgage:

  • Find a way to increase your monthly earnings
  • Work toward paying down your debts
  • Plan to make a larger down payment

Another smart strategy? Work with an experienced mortgage broker, like the team at Intercap Lending in northern Utah. We’re experts in home financing, and we’d be happy to share advice and help you qualify for a mortgage. We’ll shop around, and you can trust us to find a home loan with favorable terms.

For more information on the 28/36 mortgage rule, or to explore your Utah home loan options, contact Intercap Lending today.