There’s a difference between what a lender will approve you for and what you should actually spend. Understanding both — and choosing wisely — can mean the difference between comfortable homeownership and being “house poor.”
The Lender’s Number
Lenders look at your debt-to-income ratio (DTI). Most conventional loans allow up to 43% back-end DTI — meaning your total monthly debt payments (mortgage + all other debts) can be up to 43% of your gross monthly income.
Example:
- Gross income: $10,000/month
- 43% DTI: $4,300/month available for all debts
- Existing debts (car, student loans): $800/month
- Remaining for mortgage: $3,500/month
- At 7% interest rate: approves you for roughly $525,000
Your Number
The 28/36 rule is a more conservative (and arguably more practical) benchmark:
- No more than 28% of gross income on housing costs (mortgage + taxes + insurance)
- No more than 36% total on all debt
Using the same $10,000/month income:
- 28% = $2,800/month for all housing costs
- At current rates, that’s roughly a $375,000 loan — with a conventional 20% down payment, a $470,000 purchase price
Hidden Costs That Lenders Don’t Factor In
- Property taxes (1–1.5% of home value in CA)
- Homeowners insurance ($100–$250/month)
- HOA fees (can be $200–$800+/month in some communities)
- Maintenance (budget 1% of home value annually)
- Utilities
Rick’s Approach
Before looking at houses, get pre-approved. Not to know your maximum — but to know your comfortable range. Rick’s goal is to help you find a loan that fits your life, not just your paperwork.
The best homeowners are the ones who bought at the right price for their budget and still have room to breathe.