Is the 28% Rule Still Relevant for Homebuyers in 2025?

September 23, 2025•3 min read

Understanding the 28% Rule

For decades, financial advisors and mortgage lenders have used the “28% rule” as a benchmark for housing affordability. The rule states that your monthly housing costs—including mortgage payments, property taxes, homeowners insurance, and HOA dues—should not exceed 28% of your gross monthly income. It’s a simple way to ensure borrowers don’t overextend themselves financially.

But with rising home prices, higher interest rates, and changing lifestyles, many prospective buyers are wondering: is the 28% rule still valid in 2025?

Why the Rule Was Created

The 28% rule isn’t arbitrary. It evolved from traditional underwriting guidelines used by lenders to minimize default risk. Historically, keeping housing costs within this threshold has been shown to improve loan performance and financial stability for borrowers.

Combined with the “36% rule” (which says your total monthly debt payments—including housing, car loans, and credit cards—shouldn’t exceed 36% of your gross income), these ratios have long shaped lending practices.

Today’s Housing Market Reality

As of late 2025, the average 30-year fixed mortgage rate is hovering around 6.7%. Meanwhile, the median U.S. home price sits above $400,000. These factors mean many buyers are stretching beyond traditional affordability limits just to enter the market.

A recent analysis from the Harvard Joint Center for Housing Studies found that more than 30% of U.S. homeowners now spend over 30% of their income on housing—a level typically defined as “cost burdened.” The numbers are even higher for first-time buyers, who don’t have equity from a previous sale to offset today’s high prices.

In this environment, the 28% rule can feel outdated or even unattainable, especially in major metro areas.

When the 28% Rule Still Makes Sense

That said, the 28% rule remains a smart benchmark for financial health. Buyers who stay under this threshold generally enjoy more room in their budgets for emergencies, retirement savings, or lifestyle expenses. This cushion can be especially valuable in today’s uncertain economic landscape.

Sticking to 28% or less also improves your chances of qualifying for a conventional mortgage with better terms. Lenders still view lower debt-to-income ratios as less risky, and some underwriting algorithms weigh this factor heavily.

When Flexibility Might Be Warranted

For some buyers, exceeding the 28% mark may be a calculated risk. If you have minimal other debt, strong job security, and a robust savings cushion, allocating 30% to 35% of your income toward housing might be sustainable.

Additionally, some mortgage programs—especially FHA loans—allow for higher debt-to-income ratios, sometimes up to 43% or more, depending on your credit profile.

If you’re buying in a high-cost-of-living area or expect your income to grow steadily, temporarily going above 28% might be the only way to become a homeowner without waiting years.

A Smarter Approach to Affordability

Rather than treating the 28% rule as a hard limit, think of it as a guideline. It’s a helpful starting point, but your personal budget should be the final authority.

Here’s what to consider:

Do you have high-cost debt or irregular income? Stay closer to 28%.
Is your lifestyle relatively low-cost or highly flexible? You may be able to stretch a bit.
Are you buying a starter home or forever home? The time horizon matters.
Do you have emergency savings and retirement contributions? Don’t sacrifice long-term security.

Final Thoughts

The 28% rule isn’t dead—it’s just not one-size-fits-all anymore. In 2025’s competitive and costly housing market, many buyers need to adjust their expectations or their strategies. That might mean expanding your location search, increasing your down payment, or being open to a higher ratio—temporarily.

Ultimately, the smartest homebuying decision is one that balances your current needs with long-term financial stability. The 28% rule is a good compass, but you get to set the course.

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