When most people think about banks and bankers, “generous” is usually not the term that springs immediately to mind. In fact, for many people, “stingy,” “strict,” or “stern” might be the adjectives they think of more readily. But a funny thing happens when you express an interest in purchasing a home: suddenly, your lender becomes the most generous person you know.

I’ll use my home-buying experience as an example of what I mean: six months ago, I started making inquiries about getting a mortgage. I began my quest for the perfect home loan with the bank I’d been a customer at since college. I went through the preliminary paperwork process fairly quickly, but I paused in utter shock and disbelief when I saw how much I’d been approved to borrow for a home. According to my potential lender, I was in a position to borrow nearly six times my annual salary to purchase the home of my dreams.

Holy cow!

Of course, there’s no way I would have ever considered actually getting a mortgage for that amount. I knew roughly what I was able to spend each month on a mortgage payment and if I had borrowed as much as the bank would allow, I’d be at almost double that figure. I quickly made it clear to my realtor that, despite what the bank was willing to dole out, I wouldn’t be comfortable shopping above the budget I’d already set.

The whole episode really got me thinking, though; I happen to be especially diligent about my finances, but what if I wasn’t? I probably would have taken my bank at its word and started looking for homes in a price range that’s well above what I can really afford. This is probably why so many people end up way over their heads when it comes to their monthly mortgage payments.

So what steps should you take to be sure that you don’t fall into this trap? I suggest working backwards from your monthly budget – to do this, follow the steps below:

• First, figure out what you’d be comfortable spending monthly on your total housing payment. Remember to include insurance, HOA fees, and property taxes in this figure. Most experts recommend keeping your total housing costs to 35% or less of your total monthly budget.
• Then, use an online calculator to establish how large of a mortgage you can afford while still staying within your monthly housing budget.
• Last, don’t let your lender or your realtor pressure you into spending more. Stick to your guns!

Generosity on the part of your lender isn’t always in your best interest – be sure to set a budget and stick to it before you begin your home search!