Q: My wife and I are ready to buy our first home. We’ve been reading articles about how much house we can afford, but the advice is contradictory. With high interest rates and low inventory, how would you approach determining how much we can afford?
A: Most of the advice you’ve been reading starts in the wrong place. Articles typically tell you to begin with your monthly budget and work backward to a mortgage payment. That’s a lender’s framework, not a buyer’s. It answers “how much will a bank approve?” rather than “how much house can we comfortably own without disrupting our financial future?” Those are very different questions.
Start with your gross monthly income. It’s objective, fixed, and immune to the enthusiasm that clouds judgment. Are your current spending habits aligning you with a house payment you can afford?
Here is the sequence that protects you:
Step one: Anchor to gross income. Financial planners broadly recommend keeping total housing costs principal, interest, taxes, and insurance, known as PITI, at no more than 25% to 28% of gross monthly income. A lender may approve you at 43% or higher. That gap between what a lender will approve and what is financially prudent is where stress, regret, and hardship live.
Step two: Derive your comfortable monthly payment. Apply your chosen percentage to gross income. That number becomes your personal ceiling, not whatever appears on an approval letter.
Step three: Work backward to a purchase price. Using current mortgage rates, calculate what purchase price produces that monthly payment. Here is a reader’s advice to me. It is another way to determine what you can afford.
Step four: Account for the full cost of ownership. First-time buyers routinely underestimate ongoing costs. Property taxes, homeowner’s insurance, maintenance budget, and possible HOA fees can add hundreds of dollars monthly to your true housing cost. Run your 25-28% calculation against the total, not just the mortgage payment.
Step five: Stress-test your number. What happens if one income disappears for six months? If the furnace fails in year one? If rates rise on a future refinance? A home that is affordable on paper becomes a trap when the margin is razor thin.
Now layer in today’s market realities. High interest rates compress your purchase price significantly at any given monthly payment. Low inventory means competition, which means emotional pressure to stretch your budget. Both conditions argue for more discipline, not less. This is precisely the wrong environment to borrow at your approval ceiling.
One final caution: your pre-approval letter will feel like permission to spend up to that number. Treat it as a ceiling you should probably never touch. Many experienced buyers deliberately borrow 20% to 30% below their approval ceiling. Ask any of them years later whether they regret that decision.
Start with income. Work forward to a payment. Work forward again to a price. Buy the house that fits your actual life, not the life a lender imagines you might have.
