Here's the deal:
Current social security is based on two people receiving it. They are 69 years old. Statistically, one of them will die and the other may well live quite sometime after that. When one of them dies their social security will drop to one income stream, that of the largest of the two current income streams.
When deciding on how much house to buy, the decision should be based on that LOWER social security income, not the current income.
So, that's $3200 a month, is that correct? That's 38,400 a year. 4% of $825,000 = $33,000 a year.
Sustainable income is $71,400. I don't think anyone should get a mortgage at more than twice their annual income, so we're talking a home for $142,800 based on their income.
They are currently spending $60,000.
Does that include a mortgage payment? Or is the current house paid off? If the house is currently paid off, that means they only have, on average, $11,400 to spend on principle, interest, and the difference between their current and new taxes and insurance. Otherwise they are drawing down their stash too high. If the house is not currently paid off, then that $11,400 is available for a more expensive house than they currently have.
We don't know how much equity they have on the house. Equity from the sale of the current house could be used to reduce the size of a mortgage. If they can afford a $142,800 house with zero equity, and they have $100,000 in equity, they could use that to enable them to afford a $242,800 house. There's enough slippage in my calculations to allow for a small delay in selling the old house and additional costs to refinance the house to a lower mortgage amount after applying the equity. If the loan allowed recasting, they wouldn't have to refinance to reduce the mortgage expense after the equity was applied.
No way would I get a $350,000 mortgage with their income unless I had every reasonable expectation of being able to reduce it BIG TIME after a fairly prompt sale of my current home.