How Much House Can You Actually Afford?

When you get pre-approved for a mortgage, the lender tells you the maximum amount they'll lend you. Many first-time buyers take that number and start shopping at the top of their range. This is usually a mistake.

Lenders use the 28/36 rule as a guideline. Your housing costs (mortgage, taxes, insurance) shouldn't exceed 28% of your gross monthly income, and your total debt payments shouldn't exceed 36%. But some lenders will approve you at 43% or even higher — which can leave you financially stressed.

What banks don't factor in

Your pre-approval amount doesn't account for groceries, utilities, childcare, car maintenance, savings goals, vacations, retirement contributions, or any other real-life expenses. It's based purely on your income and existing debt — not your actual budget.

A worked example

A family earning $85,000 per year has a gross monthly income of about $7,083. At the 28% front-end ratio, their maximum housing payment would be $1,983. At a 6.5% rate on a 30-year loan with 10% down, that supports a home price of roughly $310,000.

But if this family has $500 in monthly debt payments, daycare costing $1,200 per month, and wants to save $500 per month for retirement, their comfortable housing budget is closer to $1,400 — supporting a home price of about $220,000. That's a $90,000 difference between what they can technically afford and what's actually comfortable.

The sweet spot for most families is spending 25% or less of take-home pay on housing. This leaves room for everything else without feeling house-poor.