One of the most common sources of confusion for homebuyers—especially first-timers—is the difference between how much they qualify for and how much they can actually afford when purchasing a home. If you’ve previously purchased a home, chances are you remember this confusion well! You see, mortgage lenders determine your maximum loan amount based on formulas that weigh your gross income, debts, credit profile, and down payment. This process results in a set of ratios and numbers that reflect what the lender is ultimately willing or allowed to lend you based on available loan programs. However, just because you qualify for a certain amount doesn’t necessarily mean you should borrow that much. Remember that sentence! One of the keys reasons for this discrepancy is related to the use of gross income vs. net income. The truth is most of us are not taking home our gross pay every two weeks, and our resulting affordability could be significantly different than our qualification amount.

While qualification focuses on the amount you can qualify for based on gross income and program guidelines, affordability, on the other hand, is rooted in your personal budget and lifestyle. This includes your projected monthly mortgage payment plus ongoing expenses like property taxes, homeowners’ insurance, utilities, and regular maintenance. In addition to these homeownership costs, it’s also important to factor in your other financial responsibilities—such as student loans, childcare, car payments, and even savings for emergencies or future goals. Considering you full financial picture, as well as future financial goals, is a key piece of the homebuying process. It is this step that helps ensure that a home becomes a source of stability, not financial pressure.

Consider this: stretching to buy at the top of your approved range might land you in a beautiful home, but it could also lead to “house poor” living—where most of your income goes toward the home and little is left over for everyday needs, entertainment, or savings. With minimal to no margin in your monthly budget, unexpected repairs, rising utility costs, or changes in income can make things even tighter. That’s why it’s critical to create a realistic housing budget that reflects your comfort level, not just the bank’s. Remember that some the costs associated with your mortgage alone are dynamic and subject to increase, even with fixed rate loan. Those include your property taxes and insurance costs. As Jeremy brown points out, from 2021-2024, certain markets have seen premiums increase by as much as 95%, How rising home insurance costs are hurting the housing market in 2025.

To get a better sense of what you can truly afford, start by reviewing your current budget. Use online mortgage calculators to estimate monthly payments at different price points and interest rates. Be sure to include estimated taxes and insurance. It’s also wise to set aside a monthly amount for routine maintenance and emergency repairs. If you’re unsure where to start, consider speaking with a financial advisor or a trusted mortgage professional who can help you see the full financial picture. Be sure to ask questions that enable you to gain a deeper understanding of the true costs associated with your potential purchase. What items could change in the future that may impact your budget and quality of life. Informed decisions are the key to removing much of the anxiety from this process.

Common Sense Takeaway:
Because you qualify for a specific loan amount does not mean that you should proceed with borrowing at that loan amount. The decision for how much you borrower should be a comprehensive decision that you make based on your true take-home pay, regular monthly expenses, and long-term financial goals. Working with a trustworthy financial advisor or mortgage loan professional, who encourages you to ask questions throughout the process is a key element in finding success during this portion of the mortgage lending process.

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Disclaimer: The author of this blog is not a licensed mortgage originator. All information provided should be verified with a licensed lending professional. Information provided in blog posts by The Common Sense Mortgage are for educational purposes. All mortgage loans are subject to individual investor guidelines and underwriting approval.