What a Lender Will Give You vs What You Can Afford
A lender works out the most they are willing to give you. That is not the same as what you can afford. On a $120,000 income with $60,000 down, they will stretch to $652,433 - while the comfortable figure is $435,425. The $217,009 gap between them is risk you carry and they do not.
Two numbers, and only one is advice
A mortgage pre-approval answers a specific question: what is the largest loan this lender is willing to make, given their rules and their risk?
That is a useful number. It is not the same as what you can afford, and it is not meant to be.
A lender does not know about your childcare costs, your plans to have another child, how secure your job is, or what you want your life to look like. They are also not the ones making the payments.
| House price | Monthly payment | |
|---|---|---|
| What a lender would stretch to | $652,433 | $4,300 |
| Comfortable | $435,425 | $2,800 |
| The gap | $217,009 | $1,500 |
$120,000 household income, $60,000 deposit, 6% rate. Both figures from the home affordability calculator.
What $1,500 a month actually is
That gap is not abstract. It is $1,500 a month, every month, for thirty years.
It is the childcare bill. It is retirement contributions. It is the money that means a broken boiler is annoying rather than a crisis. It is the reason one person losing a job for three months is survivable.
Buying at the lender’s maximum does not make you reckless. It makes you a household with no margin - where every unexpected cost has to come from somewhere that was already spoken for.
The part of the payment that never ends
Something worth seeing separately. The comfortable $2,800 payment breaks down as:
| Part of the payment | Monthly |
|---|---|
| The mortgage itself | $2,251 |
| Property tax | $399 |
| Insurance | $150 |
$549 a month is not the mortgage at all. And unlike the mortgage, tax and insurance never stop - not even after the loan is paid off in thirty years.
People picture being mortgage-free as having no housing costs. It is not. It is having $549 a month of housing costs instead of $2,800, rising with the value of the house.
Other debt costs more than its payment
This one surprises people.
$600 a month of car and student loan payments does not just cost $600 a month. On this income it cuts your borrowing power by $86,803.
Lenders work from a share of your income, so every dollar of existing debt payment displaces a dollar of mortgage payment - and a dollar of monthly payment is worth roughly $145 of house at these rates.
Which means clearing a car loan before applying can be worth more to you than saving the same amount as deposit. Worth working out which does more in your case.
What the rate does
Same buyer, same deposit, different rate:
| Rate | Comfortable price |
|---|---|
| 5% | $472,896 |
| 6% | $435,425 |
| 7% | $402,814 |
| 8% | $374,381 |
Nearly $100,000 of house for three percentage points. That is why getting several quotes matters more than most of the decisions people agonise over.
How to use the two numbers
The lender’s figure is a ceiling, not a target. Use it to know you will be approved. Then decide separately what you actually want to spend.
A useful question: what would this payment mean if one income stopped for six months? Run it at the comfortable figure and at the maximum. The answers are usually different enough to settle the argument.
Before you start looking
- Get pre-approved so you know the ceiling - but do not treat it as a recommendation.
- Work out the careful figure separately and shop in that range.
- Clear expensive monthly debts first if you can. It buys more house than the same money as deposit.
- Get several rate quotes. Three points is $100,000 of house.
- Remember tax and insurance never end. Budget for the whole payment, not the mortgage.
Compare both figures on your own income in the home affordability calculator - it shows what a lender would offer and what leaves room for the rest of your life, side by side.
Common questions about home affordability
Should I borrow the maximum I am approved for?
Usually not. Being approved for a number is not advice that the number is wise. On a $120,000 income the lender's maximum is $652,433 with a $4,300 monthly payment, against a comfortable $435,425 at $2,800. That $1,500 a month difference is your entire margin for everything else in life.
What is debt-to-income?
Your monthly debt payments as a share of gross monthly income. Lenders commonly stretch to around 43% including the new mortgage. The more careful guideline puts housing alone at around 28%. Both numbers are shown side by side because the gap between them is where trouble lives.
How much does my other debt cost me?
More than the payment. On this income, $600 a month of car and student loan payments cuts your borrowing power by $86,803. Clearing a car loan before applying can be worth more to you than saving the same amount as deposit.
How much does the interest rate change things?
A lot. The same buyer can comfortably afford $472,896 at 5% and $374,381 at 8%. nearly $100,000 of difference for three percentage points. That is why shopping for a rate is worth real effort rather than taking the first offer.
What does this leave out?
Everything the lender cannot see. Childcare, commuting, saving for retirement, irregular bills, and the plain fact that a house needs money spent on it every year. That is not a criticism of lenders - it is why the second number is the one to plan around.