Why "What Can I Afford?" Is The Wrong Question

When you start your homebuying journey, it’s easy to lose sight of what’s truly realistic while scrolling through all those breathtaking listings. By realistic, we mean realistic for you—your income, your comfort level, and your goals. 

Sure, you may have been pre-approvedA validation of exactly how much of a loan for which you are approved.pre-approvedA validation of exactly how much of a loan for which you are approved. for a certain loan amount. But does that mean that’s what you should actually spend? Maybe yes, but maybe not. Asking “What can I afford?” puts the focus on an outside number. Instead, try asking yourself: 

Because the only person who can really answer that question is you (and maybe your family). A lender might tell you the maximum you can borrow, but borrowing less often means a smaller monthly payment, more flexibility, and less stress down the road. 

The Difference Between What You Qualify For and What You Can Afford 

When a lender calculates what you qualify for, they typically base it on your gross income. That’s your total pay before taxes and deductions. But when you’re planning your actual budget, what really matters is your net income (what hits your bank account after everything’s taken out). 

That’s why it’s important to look beyond the approval letter. Once you factor in healthcare costs, daycare, or other monthly expenses, your personal affordability picture can start to appear very differently. 

Expert Tip

Dependents don’t always factor heavily into loan guidelines (except for certain programs like VA loans), but they absolutely impact your day-to-day finances.

Maybe one of your kids just started a pricey new sport, or you’re saving for college. Even if those costs aren’t part of your lender’s formula, they’re still very real for your budget.  

How Lenders Determine Your Loan Amount 

When reviewing your application, lenders look at your income consistency and your debt-to-income ratio (DTI)The percentage of your gross monthly income that is used to pay your monthly debt and determines your borrowing risk.debt-to-income ratio (DTI)The percentage of your gross monthly income that is used to pay your monthly debt and determines your borrowing risk.. 

Expert Tip

As a rule of thumb, lenders prefer your total DTI to stay somewhere below 43%.

That means your combined monthly debt payments—car loans, credit cards, student loans, and your potential mortgage—shouldn’t exceed 43% of your gross income. 

It’s a helpful guideline for lenders, but not always the right benchmark for your personal comfort level. To get a clearer picture, many people turn to the 50/20/30 ruleA budgeting guideline that suggests allocating 50% of your after-tax income to needs, 30% to wants, and 20% to savings and debt repayment.50/20/30 ruleA budgeting guideline that suggests allocating 50% of your after-tax income to needs, 30% to wants, and 20% to savings and debt repayment. to balance recurring expenses, savings, and flexible spending.  

Figuring Out a Homebuying Budget That Fits Your Life 

1. Recurring Payments 

About 50% of your take-home pay should cover fixed costs: your mortgage (or rent), car payments, utilities, groceries, and basic subscriptions. If you come in under that number, resist the urge to spend the difference. Instead, keep it aside for unexpected costs or maintenance (because homeownership always brings surprises). 

And remember: even within that 50%, try not to let more than 43% of your income go toward debt payments. Essentials like food and housing come first; a gym membership or streaming service can wait if needed, right?   

2. Savings  

In a perfect world, 20% of your income could go toward savings. Whether that’s an emergency fund, future home repairs, or your down payment. If you share household expenses, make sure both incomes are contributing their own 20%. It’s the easiest way to steadily build financial security. 

3. Flexible Spending 

The remaining 30% covers lifestyle choices: dining out, travel, hobbies, and entertainment. Because yes, you should absolutely still enjoy your life while budgeting responsibly. Think of this category as “optional joy,” and adjust it up or down as your goals evolve. 

Finding Your Comfort Zone  

At the end of the day, a pre-approval number is just that...a number. It doesn’t reflect your priorities, your comfort level, or your plans for the future. 

By understanding your debt-to-income ratio and using tools like the 50/20/30 rule, you’ll have a better sense of what you can truly afford (not just what a lender says you qualify for). 

So when the question comes up, try reframing it. Instead of asking, “What can I afford?” ask, 

Because the best kind of homeownership isn’t just about qualifying for the house you want. It’s about comfortably living in it.