When you apply for a mortgage, lenders determine your borrowing power by calculating your Debt-to-Income (DTI) ratio. However, these underwriting algorithms rely entirely on your gross income—the money you earn before federal taxes, state taxes, health insurance, and retirement contributions are deducted.
Relying on basic calculators that use gross income can give you a dangerous illusion of affordability. If you max out your budget based on gross income, you risk becoming "house poor," leaving little margin from your actual take-home pay to cover utilities, groceries, and inevitable emergency home repairs.
This affordability crunch is actively reshaping the housing market. According to the 2025 Profile of Home Buyers and Sellers published by the National Association of Realtors (NAR), the share of first-time buyers has plummeted to a historic low of 21%. Furthermore, the median age for a first-time buyer has reached a record high of 40 years old. Because of high home prices and elevated interest rates, it is taking the average American significantly longer to save for a down payment and comfortably fit a mortgage into their net monthly budget.
Instead of asking "How much will the bank approve me for?", you should focus entirely on what you can comfortably pay each month from your actual net income.
The Consumer Financial Protection Bureau (CFPB) provides an excellent official guide on how to figure out what you can actually afford by calculating your target total monthly home payment first.