An individual’s credit score is often a primary factor involved with the approval of a credit application. Lenders will require that a credit score fall within a certain range. However, the credit score is not the only consideration for approval. Lenders also consider a borrower’s income, and debt to income ratios.

The 28/36 Rule is a guide that lenders use to structure their underwriting requirements. Some lenders may vary these parameters based on a borrower’s credit score, potentially allowing high credit score borrowers to have slightly higher debt to income ratios.

A buyer who makes $50,000 per years receives a gross monthly income of $4,167.

Under the 28/36 rule, lenders want your principal, interest, taxes and insurance – referred to as PITI – to be 28 percent of your gross monthly income.

28% Rule: A buyer that makes $50,000 per year can afford around a $1,167 monthly PITI mortgage payment if their monthly income is $4,167, ($4,167 x 0.28 = $1,167).

36% Rule: A buyer that makes $50,000 per year, total monthly debt payment which includes PITI, car notes, food, credit card bills, and student loans, shouldn't exceed $1,500 of their gross monthly income, ($4,167 x 0.36 = $1,500).

The usual rule of thumb is that you can afford a mortgage two to 2.5 times your annual income. A buyer that makes $50,000 per year can afford a home that is valued at $125,000, ($50,000 x 2.5 = $125,000).

If a buyer purchased a 30-year fixed rate mortgage, at an annual interest rate at 4%, and a mortgage loan amount of $125,000, the monthly principal and interest payment would be around $597 each month. However, be careful. Just because a lender may be willing to extend credit doesn't mean that you should necessarily borrow that amount.