A preapproval letter is a ceiling, not a recommendation. It answers the question "what is the largest loan we are willing to write for this borrower," which is a different question from "what payment will still feel fine in year four when the water heater goes." Plenty of people buy at the top of the letter and spend the next decade tight.
Here is how to find your own number before you talk to anyone.
Start with the payment, not the price
A house price is an abstraction. A monthly payment is the thing you actually live with. Work backward from what you can comfortably pay each month.
Take your gross monthly income and multiply by 0.28. That is the traditional guideline for total housing cost, and total means principal, interest, property taxes, homeowners insurance, and any HOA dues or mortgage insurance. On $8,000 a month of gross income, that is $2,240 for everything, not $2,240 for principal and interest with taxes stacked on top. This is the single most common place people miscalculate.
Then check the second ratio. Add your housing cost to every other monthly debt payment: car loans, student loans, minimum credit card payments, personal loans. Most lenders want that combined figure at or below 36% of gross income, and many will stretch to 43%. The stretch is where the tight years come from.
Turning a payment into a price
At our current 30-year fixed rate of 6.375%, roughly $625 of monthly principal and interest buys about $100,000 of loan. So a $1,875 principal and interest budget supports a loan around $300,000.
But you have to carve out the rest of the payment first. On a $300,000 home, property taxes and insurance commonly run $450 to $700 a month combined, and that varies enormously by county. Subtract that from your 28% figure before you convert to a loan amount, or you will shop $60,000 too high.
Add your down payment on top of the loan amount to get the purchase price. If you are putting less than 20% down, add private mortgage insurance to the monthly column too, typically 0.5% to 1% of the loan per year.
The costs the calculator leaves out
Closing costs run 2% to 5% of the purchase price and are due at the table. On a $350,000 home that is $7,000 to $17,500 on top of the down payment.
Then there is maintenance. Budget 1% of the home's value per year and do not treat it as optional. On a $350,000 house that is $292 a month you will not spend most months and will very much spend the month the roof needs work.
Finally, protect your emergency fund. Do not empty savings to reach a larger down payment. A buyer with 10% down and six months of expenses in the bank is in a stronger position than a buyer with 20% down and nothing behind them.
If the number you arrive at is smaller than the number in the preapproval letter, that is not a failure. That is the exercise working.
This is a demonstration website; rates, products, and figures shown are illustrative only.
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