How much house can I afford?

Why isn't my pre-approval amount my budget?

Your pre-approval is the most a lender will let you borrow, not what's comfortable for your life. Lenders look at your gross income and your minimum debt payments. They don't see daycare, your car insurance, what you put into savings, or the trip you take every summer. I always tell clients: the pre-approval is the ceiling, not the target.

What's a good rule of thumb?

• Housing payment: about 28% to 31% of your gross monthly income. That's the whole payment: principal, interest, property taxes, homeowners insurance, HOA dues, and mortgage insurance if you have it.
• All debts together: under about 36% to 43%, counting the new house payment plus car loans, student loans, and credit card minimums.

Many loan programs will approve you higher than that, sometimes up to around 50% for total debts. Just because you can doesn't mean you should.

How do I find my own number?

1. Take your monthly take-home pay.
2. Subtract everything you already spend each month, plus what you want to keep saving.
3. What's left is the most you'd want to spend on housing. Compare that to the lender's number and go with the lower one.

What costs do people forget?

• Property taxes and insurance can add hundreds a month, and they tend to go up over time.
• HOA dues and possible special assessments on condos and townhomes
• Mortgage insurance if you put less than 20% down (conventional) or on FHA loans
• Maintenance: plan on setting aside roughly 1% of the home's value each year
• Utilities usually run higher than in an apartment

Example scenario (illustrative)

A couple in Colorado earns $8,000 a month before taxes. At 28%, a comfortable housing payment is about $2,240 all-in. Their lender pre-approves them for a payment closer to $3,400, but after their car payment, daycare, and savings goals, $3,400 would leave them stretched every month. They shop in the range that fits $2,300, and they still have room in the budget when the first property tax bill goes up.

Our take

Buy the house that lets you sleep at night. I'll show you exactly what you qualify for and then walk through the real monthly cost, with taxes, insurance, and everything else included, so the number you pick fits your life, not just a lender's formula.