The bank just approved you for $450,000. Do not spend it.
What the bank is actually asking
When a lender approves you, they aren’t asking whether you’ll be comfortable after the payment. They’re asking whether you’ll pay them back. A borrower eating ramen every night to make the payment is still a good loan for them.
So the number comes in at your ceiling. That makes a pre-approval one of the easiest ways to overspend on the biggest purchase of your life.
What DTI misses
Lenders lean on your debt-to-income ratio, or DTI: your monthly debt payments divided by your gross income. It’s useful to know, but it ignores most of real life. Daycare, groceries, gas, and saving for retirement don’t count.
A bigger house costs more than the mortgage
Buy more house and the property taxes grow, the insurance grows, and so do utilities, maintenance, and the furniture to fill it.
Build your own number
- Start with your real take-home pay, not your salary
- Subtract everything else you spend and save each month
- What’s left is the most your full housing payment can be, including taxes and insurance
For a lot of people, that number lands well under what the bank approved. Approved for $450,000, comfortable at something like $320,000.
Previous: Part 2, waiting on interest rates.
What I actually use: Fidelity for investing, the Amex Gold for everyday spending, and the rest on my What I Use page.
General education, not advice for your situation.
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