You've been pre-approved for $450,000. Congratulations. But here's the thing nobody at the bank is going to tell you: just because they'll lend you that much doesn't mean you should borrow it. The bank's job is to lend money. Your job is to not drown in it.
Let's walk through the actual math so you know what you can comfortably afford before you fall in love with a house that's going to eat your paycheck alive.
Most lenders use the 28/36 rule as a baseline, and honestly, it's a solid framework for buyers too.
Notice that's gross income, not take-home. So if you earn $100,000 a year, your gross monthly income is $8,333. Twenty-eight percent of that is $2,333. That's your ceiling for housing costs. Not just the mortgage payment — all of it.
This is where people get tripped up. Your monthly housing cost isn't just principal and interest on the mortgage. It includes:
Lenders call this PITI — principal, interest, taxes, and insurance. All of it needs to fit within that 28% number.
You've heard it a thousand times: put 20% down. And yes, there's a real advantage to that. Put down 20% or more and you avoid PMI entirely, which saves you roughly $100 to $300 per month depending on your loan amount and credit score.
But here's the reality: most first-time buyers put down somewhere between 6% and 7%. The median is nowhere near 20%. Don't let the "perfect" number stop you from buying if the math works otherwise.
Your main options:
The tradeoff is straightforward. Less money down means a higher monthly payment and extra insurance costs. More money down means lower payments but more cash tied up in the house instead of your emergency fund or investments.
On top of your down payment, plan for 2% to 5% of the purchase price in closing costs. On a $390,000 house, that's $7,800 to $19,500. This covers things like:
Some of these are negotiable. Some aren't. Either way, you need cash in hand for them.
Property taxes vary wildly by state. In New Jersey, the effective rate is around 2.2% of your home's assessed value. In Hawaii, it's closer to 0.3%. On a $400,000 home, that's the difference between $8,800 and $1,200 a year. This isn't a small detail — it can make or break your budget.
Homeowners insurance runs anywhere from $1,000 to $3,000+ per year depending on where you live and what coverage you need.
Maintenance: Budget roughly 1% of your home's value per year for upkeep. A $400,000 home means setting aside $4,000 annually for the roof that leaks, the furnace that dies, and the water heater that picks the worst possible weekend to quit. It's not a question of if — it's when.
These sound similar but they're not the same thing.
Get pre-approved before you start seriously shopping. It tells you what you can borrow and it shows sellers you're a real buyer.
Let's put this all together with real numbers.
| Item | Amount |
|---|---|
| Gross annual income | $100,000 |
| Gross monthly income | $8,333 |
| 28% of gross monthly | $2,333 |
| Max housing cost per month | $2,333 |
At a 7% interest rate on a 30-year fixed mortgage, $2,333 per month (including taxes, insurance, and PMI) supports roughly a $350,000 mortgage. If you put 10% down, that means a purchase price of about $390,000.
But remember: this is the maximum. If you also have a $400/month car payment and $300/month in student loans, the 36% rule caps your total debt payments at $3,000/month. After those debts, you've only got $2,300 for housing — and that's before you account for the fact that spending every last dollar at your limit leaves zero margin for error.
A smarter target? Aim for 25% of gross income on housing if you can. You'll thank yourself later.
Plug in your income, debts, and down payment to see exactly what you can afford.
The bank will approve you for more than you should spend. That's not advice — that's their business model. Your job is to look at the full picture: mortgage, taxes, insurance, PMI, maintenance, and the life you still want to live after you make that payment every month.
Do the math first. Fall in love with a house second.