Just because a lender approves you for a certain loan amount doesn’t mean you should borrow the maximum. Figuring out what you can truly afford requires looking beyond the pre-approval letter.
The 28/36 Rule
A common budgeting 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 the mortgage). This is a starting point, not a strict rule.
Look at Your Full Monthly Budget
Beyond the mortgage payment, factor in utilities, maintenance, commuting costs, childcare, and other regular expenses. A home that’s “affordable” on paper can strain your budget if these extras aren’t accounted for.
Don’t Forget One-Time and Ongoing Homeownership Costs
- Closing costs (typically 2%–5% of the loan amount)
- Moving expenses
- Home maintenance and repairs (often budgeted at 1%–2% of home value per year)
- Property taxes and insurance, which can rise over time
Consider Your Job and Life Stability
If your income is variable, or you expect major life changes (a new baby, career switch, etc.) in the next few years, it may make sense to buy below your maximum approved amount to keep flexibility.
The Bottom Line
Affordability isn’t just about qualifying for a loan — it’s about being able to comfortably manage the full cost of homeownership without feeling financially stretched every month.