Getting pre-approved for a mortgage tells you the maximum a lender will extend. It does not tell you the maximum you should borrow. Banks evaluate your risk of default; they don't evaluate whether a large mortgage payment will crowd out retirement savings, emergency funds, and quality of life. That calculation is yours to make.

The 28% Rule for Housing Costs

This is a front-end ratio. The back-end ratio — all debt payments including housing — should stay below 36–43% by most guidelines (though lenders may approve up to 50%). With $1,200/month in existing debt on $15,000/month gross income, your current debt ratio is 8%. Adding $4,200 in housing = 34.7% — within the conservative guideline.

From Monthly Payment to Purchase Price

With a $4,200/month budget for housing costs, you need to back into a purchase price. At today's approximate 6.5–7% mortgage rate, a 30-year fixed loan of $550,000 carries a P&I payment of roughly $3,500/month. Add property taxes (~$650/month on a $700,000 home at 1.1%) and insurance (~$150/month), and you're at ~$4,300/month — slightly over budget. A $650,000 purchase with $85,000 down ($565,000 loan) is approximately at your ceiling by this rule.

The Hidden Costs to Budget For

The purchase price and mortgage are just the beginning. Build these into your affordability calculation:

• Closing costs: 2–5% of loan amount ($11,000–$28,000 on a $565,000 loan) — paid at closing, not rolled into the mortgage in most purchases
• Moving costs: $1,500–$5,000 for local moves; $10,000+ for long-distance
• Immediate repairs and furnishings: $5,000–$30,000 in the first year is common
• Ongoing maintenance reserve: Budget 1–2% of home value per year ($7,000–$14,000/year on a $700,000 home)

Keep Retirement on Track

The single most common financial mistake first-time homebuyers make: buying at the top of their approval limit and stopping retirement contributions to afford the payments. Never reduce 401(k) contributions (especially below the employer match) to fund a mortgage. A home purchase that derails your retirement savings is not the wealth-building decision it feels like. If the only way to afford the house is to stop saving, the house is too expensive.

Down Payment Options and PMI

A 20% down payment avoids Private Mortgage Insurance (PMI), which typically costs 0.5–1.5% of the loan annually ($2,825–$8,475/year on a $565,000 loan). If your down payment is less than 20%, factor PMI into your monthly cost. Conventional PMI is automatically removed when you reach 20% equity; FHA mortgage insurance persists for the life of the loan unless you refinance — an important distinction.