You got approved for $700,000.

Congratulations.

Now here’s my question.

Should you actually buy a $700,000 house?

Because those are two completely different conversations.

One is about what the lender says you can borrow.

The other is about what you can comfortably afford without making the rest of your life miserable.

I’ve spent years helping people buy homes, and I can tell you this.

The biggest mortgage you qualify for isn’t necessarily the best mortgage for you.

Let’s talk about what actually matters.

How Do Mortgage Lenders Determine What You Can Afford?

Lenders evaluate several things when determining how much money you may qualify to borrow.

Your income.

Your existing debts.

Your credit profile.

Your down payment.

The loan program.

And the expected housing payment.

One important calculation is your debt-to-income ratio, commonly called DTI.

That compares certain monthly debt obligations with your qualifying monthly income.

But here’s the problem.

A lender doesn’t necessarily know what you spend on vacations, groceries, kids, hobbies, retirement, or whatever else makes your life worth living.

Those expenses matter to your personal budget even when they aren’t part of the lender’s DTI calculation.

What Is Debt-to-Income Ratio?

Let’s keep this simple.

Imagine your gross monthly income is $10,000.

You have $1,000 in monthly debts.

And your proposed total housing payment is $3,000.

That gives you $4,000 in monthly debt obligations.

Divide that by $10,000.

Your debt-to-income ratio is 40%.

That doesn’t automatically mean you’re approved or denied.

Different loan programs and underwriting situations have different requirements.

But it gives us a starting point.

And qualifying at a particular DTI doesn’t tell me whether you’ll enjoy living with that payment.

What’s Included in Your Monthly Mortgage Payment?

When somebody tells me they can afford a $2,500 mortgage, my first question is:

What exactly does that $2,500 include?

Because principal and interest aren’t necessarily your entire housing payment.

We also need to account for:

Property taxes

Homeowners insurance

Mortgage insurance, when applicable

HOA dues, when applicable

Other required property-related costs

Then there’s maintenance.

Utilities.

Repairs.

And the stuff nobody thinks about until the furnace takes a shit in January.

A mortgage calculator that ignores these expenses can make a house look more affordable than it actually is.

How Much of Your Income Should Go Toward Housing?

You’ve probably heard somebody say your mortgage should be a certain percentage of your income.

That’s a useful starting point.

Not a universal rule.

Two people can earn exactly the same amount and have completely different financial situations.

One might have no debt and substantial savings.

The other might have car payments, student loans, childcare expenses, and very little left over every month.

Same income.

Very different affordability.

That’s why I prefer starting with the payment you’re comfortable making rather than working backward from the biggest loan approval possible.

Should You Buy at Your Maximum Preapproval Amount?

Not automatically.

Let’s say you’re approved for $700,000.

But when we look at the payment, you tell me you’d sleep better at the payment associated with a $600,000 purchase.

Great.

Let’s build around that.

You don’t get a trophy for borrowing the most money possible.

And the bank doesn’t care whether you can still afford to go on vacation.

I do.

Because the goal isn’t just getting you into a house.

It’s getting you into a house you can comfortably keep.

How Do Interest Rates Affect Affordability?

Interest rates directly affect your monthly principal and interest payment.

When rates increase, the same loan amount generally costs more each month.

When rates decrease, that payment generally falls.

That means your comfortable purchase price may change as mortgage rates change.

But please don’t build your entire plan around the assumption that rates will drop next year.

Maybe they will.

Maybe they won’t.

You need to be comfortable with the loan you’re taking today.

If refinancing becomes beneficial later, great.

That’s an opportunity.

Not a financial plan.

How Much Down Payment Should You Make?

That depends on your available cash, the loan program, your monthly payment goals, and what you want to keep in savings.

Some buyers put down a large amount.

Others qualify for low-down-payment or eligible zero-down-payment programs.

Neither approach is automatically right.

Putting more down may reduce your loan amount and payment.

But draining every dollar from your bank account just to make a bigger down payment may not be smart.

You still need money after closing.

Don’t Forget About the Cost of Owning the House

The mortgage is only part of homeownership.

Roofs need replacing.

Appliances break.

Landscaping costs money.

Property taxes and insurance can change.

Sometimes the house you can technically afford leaves you with almost no room for the unexpected.

That’s not where I want my clients.

Build some breathing room into your budget.

How Do You Calculate a Comfortable Home Price?

Here’s how I like to approach it.

First, determine the monthly housing payment you’re comfortable with.

Second, account for property taxes, insurance, mortgage insurance, and HOA dues.

Third, evaluate your available down payment and cash reserves.

Fourth, compare loan programs and current pricing.

Finally, work backward to a realistic purchase price.

That’s the number we should be shopping around.

Not some arbitrary maximum that appeared on a preapproval letter.

The Bottom Line

You don’t need to buy the most expensive house you qualify for.

You need to buy the right house with the right financing and a payment that makes sense.

Your mortgage should fit your life.

Your life shouldn’t have to fit your mortgage.

There’s also a big difference between preapproval and prequalification, especially when you’re ready to make an offer.

If you’re wondering what you can actually afford, let’s look at the real numbers together.

Not just what the bank will approve.

What actually works.

Your credit matters too. Here’s what credit score you actually need to buy a house.

And before you start shopping, understand how much money you actually need to buy a house.