“How much do I qualify for?” is often one of the first questions I’m asked when talking with someone buying a home, whether it’s their first home or 10th. I’ve found the question is often asked because people underestimate their buying power when it comes to real estate. While we focus on what someone can qualify for, it’s one of 3 questions we like to address during our preapproval process, because prospective home buyers need to usually know 3 numbers (sometimes more, depending on the situation).

Why it doesn’t matter

What you qualify for as a potential home buyer is often a number that’s far different from where you’ll actually end up. This is different at different price points and matters a little more for high net worth buyers and the luxury home market, and here’s why:

When we do a mortgage, down payment requirements for most loans are minimal (0-3.5% down payment), guidelines require we use unrealistically high income numbers, and also largely ignore any expenses that aren’t on a credit report.

We look at GROSS income off the bat when qualifying someone for a mortgage, and some programs can allow your debts to take up 50%, 55%, or even more of your gross income. In reality, most people take home a lot less than their gross income, so when it comes to budgeting, this often leads to lenders being able to QUALIFY you at a payment higher than you’d consider ideal. Should you know the cap on what you qualify for and where a lender’s ‘yes’ turns into a ‘no’? Absolutely – but should it be the number that drives your home search? Probably not.

What Home Price Range Aligns With My Preferred Payment Range?

This is the question that we give a lot more attention to – no one wants to be house poor, because as much as we want to love our home, we also want to have enough money to occasionally leave it to go elsewhere!

If you look online, there are SO many people that throw out generic “rules” that says “you shouldn’t have a payment that takes up more than “_____%” of your income. But the people painting with that broad brush don’t know you. How often do you eat out (and how much do you spend?) – are you dropping $800/month on doordash? Do you enjoy or aspire to travel? How much of your monthly expenses are going toward things that are not your housing? How many of those things can you give up? All of these questions and more are going to help us arrive at your ideal mortgage payment. And we’ll use that ideal payment to provide you with a price range to look for.

This kind of focus helps you avoid wasting time seeing homes that you won’t ultimately want because of payment constraints. It will also avoid you getting your hopes up or being disappointed (if you start your search thinking $800,000 is your price range because it’s “what you qualify for”, only to find out that you’re going to be much happier in a $500,000 home when it comes to your monthly payments, that’s a recipe for disappointment and a huge waste of time!).

But What If…

Ok, it happens more often than you’d think – you have your budget. You know your ideal monthly payment. You know what home price that payment affords you comfortably. Then that ONE HOUSE hits the market and checks literally every.single.one. of your needs and desires. And of course, since it’s so perfect, it comes with a less than perfect price tag.

Frankly, sometimes, it’s worth it. Do you have a potential raise expected sooner than later? Can you cut some monthly expenses in exchange for waking up in your dream home? Does this perfect home also come with an ADU that can include some rental income to offset part of the higher mortgage payment?

This is where your “Stretch qualification” comes into play. It’s important that we cover this, because often, even the “Stretch” amount is still less than you qualify for. But it allows you and your real estate agent to know a max price point to look for. I suggest keeping your home search at a price range that starts just below the price your ideal payment leads to (some great fixer upper opportunities come with lower price tags), and to cap the search at a home price just above your “stretch” number – because in many markets negotiations can bring a price just above the stretch number into your comfort zone, and with mortgage rates ebbing and flowing, a small rate reduction could bring a slightly higher priced home into your budget.

The takeaways

“How much do I qualify for” is a very important question when you’re buying a home, but it’s too often where people start and stop.

Without knowing the price range that’s in alignment with your monthly financial budgeting, AND knowing that stretch goal so you can keep an eye out for your dream home, you set yourself up to be disappointed with a payment that doesn’t align with your budget and/or lifestyle.

When you work with my team, our preapproval process covers all of these things – the result is that you & your real estate agent know how to fine tune your home search, avoiding a ton of wasted time and ensuring that when the perfect home (for you!) hits the market, you’re prepared to confidently make an offer.

Need Help?

My team knows that a home purchase is deeply personal – there is no “rule of thumb”…there’s you – and your unique goals, circumstances, and aspirations, and to that end we tailor the loan options to you.

You can get started by completing a quick, fully secure, digital application, and if you have questions you can always call (No AI, no robot phone tree – just us, answering the phone!) or contact us using our ask an expert page.