Getting approved for a certain loan amount and being able to comfortably afford it are two different things. Before you start house hunting, it’s worth running your own numbers rather than relying solely on what a lender says you qualify for.
The 28/36 Rule
A common guideline suggests spending no more than 28% of your gross monthly income on housing costs, and no more than 36% on total debt payments, including your mortgage. These aren’t hard rules, but they offer a useful starting point for a sustainable budget.
Costs Beyond the Mortgage Payment
- Property taxes: Vary significantly by location and can add hundreds of dollars monthly.
- Homeowners insurance: Required by lenders and varies based on home value and location.
- Private mortgage insurance: Often required if your down payment is below 20%.
- HOA fees: Common in condos and planned communities.
- Maintenance and repairs: Budgeting roughly 1% of the home’s value annually is a common rule of thumb.
Why Lender Approval Isn’t the Same as Affordability
Lenders often approve borrowers for more than what’s comfortable, since their calculations don’t account for every expense in your life — childcare, savings goals, or irregular costs. Just because you’re approved for a certain amount doesn’t mean you should borrow the maximum.
A Practical Approach
Build a detailed monthly budget including all anticipated homeownership costs, then compare it against your take-home pay and other financial goals. This gives you a realistic affordability number that may be different — often lower — than your maximum approval amount.