Lenders are careful, but their qualification decisions are based on averages and formulas.
They won’t understand the nuances of your lifestyle and spending patterns quite as well as you do. That’s why it’s smart to leave a little room for the unexpected—for all the new opportunities your home may bring to spend money, from furnishings to landscaping to repairs.

Historically, banks have used a ratio called 28/36 to determine how much a borrower could afford. According to this guideline, a housing payment shouldn’t exceed 28% of the buyer’s gross monthly income, and the total debt load—including car payments, student loans, and credit card payments—should not exceed 36%.

(In Canada, lenders apply similar formulas. The Gross Debt Service (GDS) ratio should not exceed 32% of the buyer’s gross monthly income, and the Total Debt Service (TDS) ratio should not exceed 40% of the total debt load.)

As home prices have risen, some lenders have stretched these ratios—sometimes allowing housing payments and total debt to reach as high as 50% of gross income. No matter how expensive your market, we encourage you to think carefully before stretching your budget that far.

Deciding how much home you can afford should involve thoughtful consideration of how your financial situation may evolve in the coming years. In the long run, your peace of mind and financial security matter most.