Besides principal and interest repayment, other costs must also be taken into account when drawing up a housing budget:

property taxes, flood insurance, mortgage insurance, homeowners insurance.

I agree with this because you don't want to end up in financial burden after purchasing a house.In fact one must be left with substantial capital even after the purchase.My suggestion is go for a cheaper house than one can afford.

The point here is that all costs must be taken into account whether the property is cheap or expensive.  This is important for budgeting purposes.

You are both correct, you also have to take into account your lively hood expenses for instance groceries, daycare(if you have kids), gas, car loan , car insurance...

Ultimately a sensible budget must be drawn up for every category of expenditure - housing, daily expenditure, education etc.  The trick is to take into account of all associated costs and not to leave out anything material.

Another important issue is to mark your priorities.Whether house comes on one's priority list at number 1 or something else.Priorities differ for different people and that should be kept in mind while planning your budget.