Lenders typically use debt-to-income ratios to determine how much they’ll approve you for, often capping total housing costs around 28% of gross monthly income and total debt around 36-43%.
Just because you’re approved for a certain amount doesn’t mean it’s the right amount to spend. The maximum loan amount doesn’t account for other financial goals like saving for retirement, an emergency fund, or other expenses.
A more conservative approach some buyers use is limiting mortgage payments to around 25% of take-home (after-tax) pay, leaving more room in the monthly budget for savings and other costs.
Remember to factor in property taxes, homeowners insurance, maintenance, and, if applicable, HOA fees – not just the loan principal and interest – when calculating what you can truly afford.
Running your own budget numbers before house hunting, rather than relying solely on a lender’s maximum approval amount, helps avoid becoming house-poor after closing.