Your lender will approve you for the maximum amount they believe you can repay based on your income, credit, and existing debt. That number and what you should actually spend are two very different things. This guide helps you figure out the second number — the one that lets you sleep at night after you buy.

The pre-approval ceiling isn't your budget

Lenders use debt-to-income ratio (DTI) as their primary affordability metric. Most conventional loans allow a back-end DTI of up to 43 to 45 percent, meaning your total monthly debt payments can be up to 45 percent of your gross monthly income. That sounds reasonable on paper, but it leaves very little room for savings, emergencies, or life in general.

A more comfortable target for most households is keeping your housing payment below 28 percent of gross income and total debt payments (including the mortgage) below 36 percent. This is called the 28/36 rule, and while it's a guideline not a hard rule, it's a useful starting point.

Example: Household gross income of $8,000/month

28% housing limit: $2,240/month for principal, interest, taxes, and insurance

36% total debt limit: $2,880/month for all debt payments combined

If you have $500/month in car payments and student loans, your comfortable mortgage payment drops to about $1,800/month — which is roughly a $280,000 loan at today's rates.

What your monthly payment actually includes

When most people think about their mortgage payment, they think principal and interest. But your full monthly housing cost includes several other items that add up fast, especially in Florida.

  • Principal and interest: The actual loan repayment. This is what the calculator shows you.
  • Property taxes: In Florida, effective property tax rates average around 0.83% of the home's assessed value annually. On a $400,000 home, that's roughly $275/month.
  • Homeowners insurance: Florida has some of the highest insurance premiums in the country due to hurricane risk. Budget at least $200 to $400/month depending on location and coverage.
  • HOA fees: If you're buying in a community with an HOA, monthly fees can range from $50 to over $1,000. Ask before you make an offer.
  • Private mortgage insurance (PMI): Required on conventional loans when your down payment is less than 20%. Typically 0.5 to 1.5% of the loan amount annually.

In Florida, the combination of property taxes and insurance can easily add $500 to $700 per month to your payment on a median-priced home. Always run the full PITI (principal, interest, taxes, insurance) number, not just the base mortgage.

The cash you need beyond the down payment

Down payment is the number everyone focuses on, but it's not the only cash you need at the closing table. Closing costs typically run 2 to 4 percent of the purchase price, paid at closing. On a $400,000 home, that's $8,000 to $16,000 on top of the down payment.

After closing, you'll also want a cash reserve. Most financial planners recommend keeping 1 to 3 percent of the home's value in a liquid emergency fund specifically for homeownership — for the HVAC that breaks in August or the roof that needs attention. Depleting all your savings to close on a home leaves you exposed.

Your debt-to-income ratio: know yours before you apply

Lenders calculate two DTI ratios. The front-end ratio is just your housing payment divided by gross income. The back-end ratio is all monthly debt payments (housing plus credit cards, car loans, student loans, child support, etc.) divided by gross income.

Before you apply, add up all your monthly minimum debt payments. If the total already represents more than 15 to 20 percent of your income, you may want to pay down some debt before applying for a mortgage, both to qualify for a better rate and to leave yourself breathing room.

Use our affordability calculator to run your own numbers — then apply when you're ready.

Try the affordability calculator →

The lifestyle question lenders don't ask

Lenders don't ask what your grocery bill is, whether you have kids in daycare, how often you travel, or how much you put toward retirement each month. The DTI calculation is purely mechanical. A $2,500 mortgage payment is very different for a couple with no kids who rarely go out than it is for a family of four with two car payments and a private school tuition.

The most useful exercise is to map out your current monthly spending, carve out what would go away after buying (rent), and see what's left for a mortgage payment. If you don't feel comfortable with that number, the lender's maximum isn't your number.

Buying a less expensive home than you're approved for is one of the best financial decisions you can make. It gives you flexibility, keeps your options open, and means one bad month doesn't threaten your home.