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 $100,000 per years receives a gross monthly income of $8,333.

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 $100,000 per year can afford around a $2,333 monthly PITI mortgage payment if their monthly income is $8,333, ($8,333 x 0.28 = $2,333)

36% Rule: A buyer that makes $100,000 per year, total monthly debt payment which includes PITI, car notes, food, credit card bills, and student loans, shouldn't exceed $3,000 of their gross monthly income, ($8,333 x 0.36 = $3,000).

The usual rule of thumb is that you can afford a mortgage two to 2.5 times your annual income. A buyer that makes $100,000 per year can afford a home that is valued at $250,000, ($100,000 x 2.5 = $250,000).

If a buyer purchased a 30-year fixed rate mortgage, at an annual interest rate at 4%, and a mortgage loan amount of $250,000, the monthly principal and interest payment would be around $1,194 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.