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 $70,000 per years receives a gross monthly income of $5,833.

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 $70,000 per year can afford around a $1,633 monthly PITI mortgage payment if their monthly income is $5,833, ($5,833 x 0.28 = $1,633)

36% Rule: A buyer that makes $70,000 per year, total monthly debt payment which includes PITI, car notes, food, credit card bills, and student loans, shouldn't exceed $2,100 of their gross monthly income, ($5,833 x 0.36 = $2,100).

The usual rule of thumb is that you can afford a mortgage two to 2.5 times your annual income. A buyer that makes $70,000 per year can afford a home that is valued at $175,000, ($70,000 x 2.5 = $175,000).

If a buyer purchased a 30-year fixed rate mortgage, at an annual interest rate at 4%, and a mortgage loan amount of $175,000, the monthly principal and interest payment would be around $835 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.