What Mortgage Amount Makes Sense for Your Home Purchase?

Buying a home isn't just about what the bank says you can afford, it’s about what’s actually sustainable for your life, goals, and risk tolerance. Especially in today’s market, with rising interest rates and stricter lending rules, choosing a reasonable mortgage amount means understanding how your mortgage fits into a much broader financial picture, including your home insurance costs.

Too often, buyers lock themselves into high monthly payments, only to feel financial strain down the road, especially when unexpected events hit. From market fluctuations to natural disasters, one of the smartest moves you can make is buying below your approval limit and factoring in the right insurance protection from the start.

The Bank’s Limit Is Not Your Budget

Just because a lender approves you for a $500,000 mortgage doesn’t mean it’s wise to borrow as much as they allow.

From a homebuyer: “Take out less than the bank will allow you to. On $160K of income, we were told we could take $500K. We took $260K instead. Our income has gone up, our interest rate has gone down, and we were able to quickly wipe away the PMI.”

Many buyers today are taking a more conservative approach, and it’s paying off. Smaller mortgages lead to less interest paid over time, lower insurance premiums (in some cases), and less financial stress when emergencies hit.

How Much Mortgage is Reasonable?

 

General Budgeting Guidelines

While personal financial situations vary, many experts recommend the following:

  •Your mortgage payment should be no more than 28–35% of your gross monthly income
 •Total housing costs (including insurance, taxes, and HOA) should stay below 40%
 •Keep a buffer for repairs, insurance deductibles, and unexpected costs

From a homebuyer: “I’d recommend taking out as small a mortgage as possible, ideally no more than 35% of your family’s gross income. Even then, the less you borrow, the less financial stress you’ll face.”

Another added:

 “Everyone has their own level of acceptable risk. For me, 20% of monthly pre-tax income is the maximum I feel comfortable with. Granted, that may not be feasible nowadays since rates have dramatically increased.”

These comments reflect the mindset of financially responsible buyers in today’s high-rate environment.

Home Insurance and Your Mortgage Size

Why Insurance Should Factor into Your Mortgage Decision

A reasonable mortgage amount isn’t just about monthly payments, it's about what you can afford when you factor in everything, especially your homeowners insurance.

High mortgage amounts usually mean higher-value homes, which can come with:

 •Higher rebuild costs
 •More expensive insurance premiums
 •Greater risk exposure (especially in California fire or flood zones)

That’s why we encourage every buyer to use our Homeowners Insurance quote page during the house-hunting process, not after. Getting coverage estimates up front helps you stay on budget and avoid financial surprises later.

Insurance Pitfalls That Impact Affordability

 •Older homes may need upgrades to qualify for coverage
 •Homes in wildfire zones may be uninsurable through standard carriers
 •Undervalued coverage can lead to denied claims or massive out-of-pocket costs

Choosing a lower mortgage amount gives you more flexibility if your insurance costs rise especially during policy renewals or after refinancing.

 

Choosing a Mortgage Broker Who Supports Smart Borrowing

 

More Than Just a Loan Connector

Mortgage brokers should guide you not push you to borrow the maximum. They should help you determine a mortgage size that reflects:

 •Your down payment
 •Income and job stability
 •Emergency savings
 •Projected insurance premiums
 •Lifestyle goals

From a homebuyer: “You have saved up for the down payment, hopefully without too many sacrifices. Those savings, averaged monthly and added to the rent, will give you a good idea of what you can afford.”

Look for Brokers Who Coordinate with Insurance Advisors

Too many brokers skip the insurance conversation altogether. That’s a red flag. A responsible broker should:

 •Request homeowners insurance quotes early
 •Evaluate whether insurance costs affect your DTI ratio
 •Coordinate with your agent to avoid escrow issues or policy lapses

This is exactly why we recommend reading Rates vs Service in Insurance and Mortgages: Striking the Right Balance. It explains how brokers and insurance advisors can work together to reduce your risk while helping you save money not just upfront, but over time.

Refinancing and Keeping Costs in Check

Lowering Your Mortgage Isn't Always About Interest Rates

With interest rates slowly stabilizing in late 2025, many homeowners are considering refinancing. But here’s the key: refinancing only works in your favor if your insurance and taxes don’t spike at the same time.

Many California refinancers are finding that their insurance costs have increased due to rising wildfire risk and tighter underwriting rules. That bump in premiums could cancel out any savings from a lower interest rate.

Smart borrowers use refinancing as an opportunity to reassess their:

 •Insurance coverage
 •Deductibles
 •Policy bundling opportunities
 •Rebuild costs (especially after renovations)

If you're refinancing this year, it's a good time to revisit your Homeowners Insurance policy and make sure it still aligns with your property's value and your financial goals. 

 

What’s Happening in the Market Right Now?

New Lending Rules Are Reshaping Borrower Expectations

In September 2025, the federal government introduced tougher stress test rules for mortgage applicants. Now, buyers must qualify for their loans at rates 2.5% higher than what they’ll actually pay.

This was introduced to help cool overheating markets and reduce borrower default rates, especially in states like California where borrowing has historically been stretched to the max.

 

From a homebuyer: “We even had a brief scare when we thought my job would be eliminated. We bought a house that would allow us to cut our income and still live in the house (on dramatically reduced expenses).”

Today, the most financially stable homeowners are the ones who intentionally borrowed less, not the ones who hit the limit of what the bank allowed.

Local Expertise Can Make a Difference

We’re proud to collaborate with Michael Thomas of the California Lending Company, an experienced mortgage broker in San Diego, California, serving buyers and refinancers across the state. Michael works directly with clients to identify sustainable mortgage amounts based on risk tolerance, insurance costs, and market trends, not just approval limits.