What Can You Afford?

How does a lender decide what I can afford?

The core tool is your debt-to-income ratio, or DTI: your monthly debt payments divided by your gross monthly income. It answers one question — how much room does your income have for a housing payment?

'Debts' means things on your credit report: loan payments, card minimums, that kind of thing. Groceries, gas, and streaming don't count in DTI — which is exactly why the lender's math and your real budget are two different things.

So a lender might approve me for more than I'd want to spend?

Very often, yes. Which brings us to the most important idea in this whole module…

If I'm approved for a bigger loan, shouldn't I just use all of it?

Usually not. An approval is a ceiling, not a target. It measures what you can borrow — only you know what leaves room for the life you actually want.

Try this instead: build your real monthly budget — savings, travel, kids, hobbies, a cushion — and see what housing payment fits that. Your comfort number might sit well below your approval number, and that's a sign of wisdom, not weakness.

Won't my agent push me toward the top of my range?

A good one won't. Share your comfort number, not your approval letter maximum, and shop to the comfort number. You're the one making the payment every month.

Beyond the mortgage payment, what else should I plan for?

The recurring ones: property taxes, homeowners insurance, possibly mortgage insurance and HOA dues. Many loans bundle taxes and insurance into the monthly payment through an escrow account — Module 12 covers how that works.

Then the ownership ones: maintenance and repairs. A common rule of thumb is to set aside a little every month, because the furnace doesn't care that you just closed.

And the one-time costs at purchase?

Closing costs (lender, title, and government fees), moving, and the immediate stuff — locks, blinds, a lawnmower you never needed before. Budgeting for these upfront is what separates a happy first year from a stressful one.