Buying a Home: What the Bank Approves vs. What You Can Actually Afford
The pre-approval letter arrives and it says $875,000. That number sounds like permission. It isn't. A mortgage pre-approval tells you the maximum a lender is willing to loan under their underwriting guidelines - not what purchase price leaves your finances intact.
How Lenders Think About Affordability
Lenders evaluate applications primarily through debt-to-income ratio (DTI). Conventional lenders typically approve up to 43% back-end DTI; some go to 50%. Those numbers reflect what programs allow - not what's actually sustainable.
The 28/36 Rule
The bottom line
These thresholds leave enough room for retirement savings, emergency funds, and the expenses that come with life.
The True Cost of Owning
The mortgage payment calculator doesn't show you everything.
- Property taxes: often 0.5-2.5% of assessed value annually
- Homeowner's insurance: typically $100-$250/month
- PMI: if down payment is less than 20%, typically 0.5-1.5% of loan amount annually
- Maintenance: budget 1% of home value annually
- HOA fees: $200-$600/month in many communities
Why Buying Less Than the Maximum Is Often Better
Jordan and Maya bought at $625,000 instead of the $875,000 they were approved for. Three years later, Maya's company offered a sabbatical she wanted to take. The lower mortgage made it possible.
The bottom line
The pre-approval is a ceiling. The right purchase price is determined by your actual financial life.
What would you do?
Jordan and Maya earn $185,000 combined. A lender pre-approves them for $875,000. They're looking at three price ranges.
Your Move
Use the Home Affordability Calculator on this page. Input your gross monthly income, current debts, and a target home price. Look at the DTI ratio - not just whether it's 'approved,' but whether it leaves room for your other financial priorities.
Sources
- Consumer Financial Protection Bureau, What is a debt-to-income ratio?
Debt-to-income limits behind home-affordability rules of thumb
Educational information only. Not financial, tax, or legal advice or a recommendation. Figures are drawn from the primary sources cited above; verify current amounts with the source before acting.
Educational content only. Not financial, tax, or legal advice. Consult a qualified professional before making decisions based on your specific circumstances.
Last reviewed: April 2026