1. What is the 28% Rule?

The 28% rule is a common guideline in personal finance that suggests you should spend no more than 28% of your gross monthly income on housing expenses (including mortgage or rent, property taxes, and insurance).

2. How Does the Calculator Work?

The calculator uses the 28% rule formula:

Where:

• \( Payment \) — Monthly payment amount in USD
• \( Income \) — Gross monthly income in USD
• \( 28\% \) — Recommended maximum percentage of income for housing

Explanation: The calculator compares your proposed payment against 28% of your income to determine affordability.

3. Importance of Affordability Calculation

Details: Following the 28% rule helps maintain financial stability by ensuring you don't overextend yourself on housing costs, leaving room for other expenses and savings.

4. Using the Calculator

Tips: Enter your monthly payment amount and gross monthly income in USD. The calculator will determine if the payment is affordable according to the 28% rule.

5. Frequently Asked Questions (FAQ)

Q1: Is the 28% rule before or after taxes?
A: The 28% rule typically uses gross income (before taxes), but some financial advisors recommend using net income for more conservative estimates.

Q2: What if my payment exceeds 28%?
A: You may need to reconsider the purchase, look for less expensive options, or find ways to increase your income.

Q3: Does this rule apply to all types of payments?
A: While commonly used for housing, it can be applied to other large recurring payments like car loans.

Q4: Are there exceptions to the 28% rule?
A: In high-cost areas, some lenders may approve higher ratios, but this increases financial risk.

Q5: Should I include utilities in the payment amount?
A: The 28% rule typically includes just housing costs (mortgage/rent, taxes, insurance), not utilities.