How Much House Can You Really Afford?

Two numbers come out of the mortgage process, and almost nobody is told they are different things.

The first is the maximum a lender will hand over. The second is the maximum you can carry for twenty-five or thirty years without the rest of your life going on hold. The first arrives on official-looking paper with your name on it. The second you have to calculate yourself, and it is nearly always smaller.

The gap between them is where most housing regret lives.

What a lender is actually testing

Affordability rules in all three countries are built around income and recorded debt. That is the whole design. The regulator's job is to reduce the chance that you default, not to make sure your life still works.

So a lender sees your credit card balances, your car finance and your student loan, because those are reported. What it does not meaningfully see is childcare, the commute the new address creates, private school fees, pension contributions above the minimum, the money you send to a parent, or the fact that you would like to keep saving at the rate you save now. In the UK the FCA's responsible lending rules do require lenders to take verified expenditure into account, but the assessment still bears little resemblance to a household's real priorities.

That is not a criticism of the rules. It just means the approval letter answers a question you did not ask.

The three tests, side by side

The mechanics differ more than most cross-border advice admits.

	United States	United Kingdom	Canada
Core test	Debt-to-income ratios, front-end (housing) and back-end (all debt)	Affordability assessment on verified income and expenditure, plus a loan-to-income cap	Gross Debt Service and Total Debt Service ratios
Common ceilings	28 percent housing / 36 percent total is the classic rule of thumb; automated underwriting often goes higher	Income multiples commonly cluster around four to four and a half times income, subject to affordability	39 percent GDS and 44 percent TDS on insured mortgages
Rate you are tested at	The contract rate; Qualified Mortgage status turns on an APR threshold rather than a fixed DTI cap	Stressed against likely interest rate rises over a minimum of five years	Greater of the contract rate plus 2 percent, or 5.25 percent, on uninsured mortgages
Who sets it	CFPB rules, plus investor and lender overlays	FCA, under MCOB 11.6	OSFI for federally regulated lenders, CMHC for insured mortgages

Three details are worth pulling out.

The 43 percent figure you have read is out of date. The General Qualified Mortgage definition in the US no longer hinges on a hard 43 percent debt-to-income limit. It turns on a price-based test comparing the loan's APR to a benchmark rate, alongside a requirement that the lender consider and verify your income, assets and debts. Lenders still use DTI thresholds, but they are lender policy now, not the statutory line.

Canada builds the safety margin into the qualifying rate. Under OSFI's minimum qualifying rate, uninsured borrowers are tested at the greater of their contract rate plus two percentage points or 5.25 percent. You qualify at a payment you are not actually making. Since November 2024, OSFI no longer requires that test for uninsured straight switches at renewal, which matters if you are moving lender without changing the loan amount or amortisation.

The UK stresses forwards, not upwards by a fixed amount. Under MCOB 11.6.18R lenders must account for likely rate rises over at least the next five years, and firms have flexibility in how they design that test. Crucially, they are barred from basing affordability on the equity in the property or on expected house price growth. The house going up in value is not allowed to be part of the argument.

Work it backwards: a worked example

Take a household with 96,000 dollars of gross annual income, so 8,000 a month. They have a 450 dollar car payment and a 220 dollar student loan payment, 670 a month of existing debt.

Apply the classic 28/36 rule. The back-end test allows 2,880 a month for all debt. Subtract the 670 already committed, and housing gets 2,210 a month. That is the whole envelope: principal, interest, property tax, home insurance and mortgage insurance if the deposit is under 20 percent.

Now fill the envelope in the right order, because the non-loan pieces come out first:

Line	Monthly
Total housing envelope	2,210
Property tax	300
Home insurance	150
Mortgage insurance at 10 percent down	120
Left for principal and interest	1,640

At 6.5 percent over 30 years, 1,640 a month supports a loan of roughly 259,000 dollars. With 10 percent down, that is a purchase price of about 288,000.

Here is the part that catches people. Run the same household through an automated underwriting engine willing to accept a 45 percent back-end ratio, and the housing envelope jumps to about 2,930 a month, which supports a price somewhere near 400,000 once the extra tax and insurance are absorbed.

Same income. Same debts. Same day. Roughly 110,000 dollars of difference, entirely down to which ratio somebody chose. The approval is real. The affordability is a separate question, and only one person in the transaction is being asked it.

The costs no affordability test contains

Once you own the place, four categories arrive that no lender modelled.

Maintenance. The working figure used across the industry is around one percent of the home's value a year, more for older properties. On a 300,000 home that is 250 a month you were not previously spending, and it does not arrive evenly. It arrives as a boiler.

The step-up effect. A bigger home costs more to heat, cool, furnish and insure. People move from a two-bed flat to a three-bed house and budget only for the mortgage difference, then find every other utility line moved too.

Transaction costs on the way out. Selling costs a meaningful percentage of the sale price once agent fees and legal work are counted. If there is any chance you move within a few years, that cost sits against the whole plan, and it is the single strongest argument for buying less house rather than more.

The opportunity cost of the deposit. Money in a house is not money in an emergency fund. Buying at the absolute top of your range usually means arriving at the closing table with a thin cushion, which is exactly when the boiler decides to be interesting.

If you are still working out the sequence of the purchase itself, the first-time buyer guide covers the order to do things in and the deposit accounts worth using first.

Run the stress test yourself

Lenders stress the interest rate. They do not stress your life. Before you commit to a number, put it through three shocks.

1. Rate. Add two to three percentage points to your rate and recalculate the payment. In Canada you have effectively already done this. In the US and UK, do it manually, and do it for whenever your fixed period actually ends rather than for thirty years out.
2. Income. Assume one income drops by a quarter for six months. Does the mortgage still get paid from cash flow, or only from savings? If only from savings, how many months does that last?
3. The 5,000 problem. Something breaks and costs 5,000. Can you pay it without borrowing? If the answer is no on the day you move in, the house is too expensive regardless of what any ratio says.

A number that survives all three is a number you can live in.

The lever most people ignore

If your ceiling comes out lower than you want, the instinct is to save harder for the deposit. Often the faster lever is on the other side of the ratio.

Every debt service test subtracts your existing monthly commitments from the same pot before housing gets any of it. Clearing that 450 dollar car payment in the example above hands the entire 450 back to the housing line, which at 6.5 percent over 30 years is worth roughly 71,000 dollars of additional borrowing capacity. Very few people can save 71,000 in the time it takes to clear a car loan.

The caution: do not drain the deposit to do it. Deposits are priced in bands in all three countries, so falling below a threshold can cost you a worse rate or trigger mortgage insurance, and that can wipe out the gain. Model both versions before you pay anything off.

A ceiling you can set tonight

Skip the ratios for a moment and do this instead.

Write down what you spend on housing now, everything included. Add the amount you are currently saving each month toward the deposit, because that money is already leaving your account and you have proved you can live without it. That total is your tested capacity. It is evidence, not a projection.

Then subtract for the things ownership adds: maintenance, the higher bills, the property tax if you rent somewhere that includes it. What remains is a housing payment you already know you can carry, arrived at from your own bank statements rather than from a percentage somebody picked in the 1980s.

If that figure comes in below what the lender offered, that is not a failure. That is the calculation working.

The bottom line

The lender's number answers "what is the most we can safely lend you". Yours has to answer "what can we carry while still living". Build it from the bottom up: start with the monthly amount you have already proved you can pay, subtract taxes, insurance and mortgage insurance, then convert what is left into a loan. Stress it against a higher rate, a lower income and a broken boiler. Whatever survives is your price ceiling, and the number on the approval letter is just the ceiling of somebody else's risk appetite.