How Much House Can You Actually Afford?

A Straight-Answer Guide

There are two different questions hiding inside "how much house can I afford": what a lender will approve you for, and what you'll actually feel comfortable paying every month. They're not the same number, and confusing them is how people end up house-rich and cash-poor.

How lenders calculate it

Lenders use two main ratios to figure out your maximum:

Gross Debt Service (GDS) ratio: your total housing costs (mortgage payment, property tax, heat, and half your condo fees if applicable) shouldn't exceed roughly 39% of your gross monthly income, though this can shift slightly depending on the lender and your credit profile.

Total Debt Service (TDS) ratio: all your debt payments combined housing costs plus car loans, credit cards, student loans, and anything else generally shouldn't exceed roughly 44% of your gross monthly income.

On top of that, if your down payment is under 20%, you'll need to pass the mortgage stress test, which qualifies you at a rate higher than what you'll actually pay this exists specifically to make sure you can handle a potential rate increase down the road.

Why the "approved for" number can be misleading

Lenders are calculating maximum capacity, not comfortable capacity. They don't know that you also want to travel, that you're planning for kids, or that you hate the feeling of a tight month. The approved number tells you the ceiling it was never meant to tell you where you'll feel good living.

This is one of the most common gaps I see between what buyers expect and what actually plays out: someone gets approved for a number, assumes that's the target, and buys right up to the edge of it — only to feel the squeeze six months later once realistic day-to-day spending settles in around a new, higher payment.

A more useful way to think about it

Before you shop, run your own numbers separately from the lender's:

1. List your actual monthly spending — not a guess, your real bank statement average over the last 3 months.

2. Subtract that from your take-home pay, not your gross income (the lender's ratios use gross; your real life runs on net).

3. See what's left over for a mortgage payment while still leaving room for savings, emergencies, and the life you actually want to keep living.

If that number is meaningfully lower than what you're approved for, that's not a problem — that's useful information. It just means your real budget and your lending capacity aren't the same thing, and now you know it before you're locked into an offer.

Don't forget the costs that sit outside the mortgage payment itself

Affordability isn't just the mortgage payment. Property tax, utilities, home insurance, ongoing maintenance, and (for a condo) monthly fees all sit on top of it. A home that looks affordable based on the mortgage payment alone can feel very different once the full monthly picture is added up. It's also worth reviewing the real closing costs first-time buyers often miss so your affordability math includes the full picture, not just the ongoing payment.

FAQ

Does my down payment size change how much I can afford? Yes, in two ways — a larger down payment reduces your mortgage amount directly, and crossing the 20% threshold removes the requirement for default insurance, which further reduces your monthly cost.

Should I get pre-approved before figuring out my real budget, or after? Ideally do both close together. Getting pre-approved tells you your ceiling; running your own numbers tells you your comfort zone. Knowing both before you start touring homes keeps you from falling for something outside either range.

Is it normal for my comfortable number to be lower than my approved number? Very normal, and honestly a good sign — it usually means you have a realistic sense of your own spending. Most experienced brokers would rather see a buyer under-buy relative to their approval than max it out.

The bottom line

Getting approved for a certain amount and being comfortable paying that amount are two different conversations. A good mortgage broker should be having both with you — not just the one that gets you the biggest number.

Want to actually run your numbers both ways before you start house hunting? Reach out and we'll figure out your real range together — not just your maximum.