Right now, buying a home ain’t cheap. Home prices are sky-high, interest rates are still biting, and lenders aren’t exactly handing out bargain loans. The “average” home in America is sitting at about $436,000. With today’s interest rates, the typical first-time buyer needs to earn around $127,000 per year just to comfortably afford it.
That’s a lot of money just to have a roof over your head. It’s no wonder more people are choosing to rent—and landlords are doing well in this market.
But let’s cut through the noise and keep it simple. I have one rule that’s been true in good markets, bad markets, and every market in between:
Your home’s purchase price should never exceed three times your annual income.
That means if you’re making $127,000 per year, your max purchase price should be $381,000—not $436,000. If you go above that, you risk becoming house rich and cash broke—owning the home but broke every month because that mortgage and upkeep are eating your whole check.
How Long You Plan to Stay Matters
If you don’t plan on staying in the house at least 7 years, renting is the smarter option.
- Short stay? Rent. Buying a home for a 1–6 year stay rarely works out financially. Closing costs, realtor fees, moving expenses, repairs, and property taxes can quickly eat away at any gains, leaving you at a loss when you sell.
- Seven years or more? Consider buying. This gives you time to ride out market ups and downs, build equity, and possibly sell tax-free—up to $250,000 profit for single filers or $500,000 for married couples—if you’ve lived in the home at least two of the last five years.
Renting Isn’t Throwing Money Away
A lot of people have been fed this idea that renting is “paying someone else’s mortgage.” That’s not the whole truth. Renting can actually be a smart wealth move—if you manage your money right.
If your rent is less than what a mortgage would cost, invest the difference. Take that extra cash and put it in the stock market, a retirement account, or another investment vehicle. Over time, those dollars can work harder for you than the equity you might’ve built in a home.
Example: If renting saves you $500 per month compared to owning, and you invest that $500 earning an average 8 percent return, you could have over $87,000 in 10 years.
Another overlooked benefit of renting? When something breaks, you call the landlord to fix it. As a homeowner, that bill lands squarely on your shoulders—whether it’s $200 for a plumber or $7,000 for a new furnace.
The problem is, too many folks rent cheap and spend the “savings” on non-essential purchases. That’s lifestyle inflation—not wealth-building.
The Real Cost of Homeownership
When you own, you’re not just paying a mortgage. You’re paying for:
- Property taxes—often thousands a year depending on location.
- Homeowners insurance—required by lenders, and it keeps climbing.
- Maintenance—a good rule is to budget 1 percent of your home’s value per year. On a $381,000 home, that’s $3,810 annually.
- Repairs—furnaces break, roofs leak, appliances die. These are not “if” expenses—they are “when” expenses.
- HOA fees (if applicable)—can range from $50 to $500+ per month.
Owning can be a great path to building equity, but it comes with ongoing bills and surprise costs that renting often shields you from.
Don’t Let the Bank Tell You What You Can Afford
Lenders will often approve you for more than you should spend because their income ratios are based on gross income—the money you make before taxes and deductions.
Most lenders follow the 28/36 rule:
- No more than 28 percent of your gross income for your mortgage (principal, interest, taxes, insurance).
- No more than 36 percent for all debt combined.
That sounds safe—until you realize that 28 percent of gross income often works out to 35–38 percent of your net income—the money you actually bring home.
My rule: Your mortgage should be no more than 30 percent of your net income.
Example: If your net income is $6,000 per month, your mortgage (including taxes and insurance) should be $1,800 or less. This leaves room for saving, investing, and living without being house poor.
The Emotional Trap of Homeownership
Buying a home is emotional. Social media tells you you’re “failing” if you don’t own by 30. Family members talk about “throwing money away” renting. Realtors push the “building equity” message.
Here’s the truth:
- Owning doesn’t automatically make you wealthy.
- Renting doesn’t automatically mean you’re broke.
- The wrong house at the wrong time can destroy your finances.
It’s not about keeping up with your cousin, your co-worker, or TikTok trends. It’s about making the move that’s right for your income, goals, and lifestyle. And remember—these people cheering you on to buy a house will not be the ones paying the mortgage when reality hits.
When Renting Might Be Smarter
- You’re still paying off high-interest debt.
- You don’t have an emergency fund.
- You expect to move within a few years.
- Home prices in your area are inflated, and rent is significantly cheaper.
Renting in these situations gives you the flexibility to get your finances in order before making a long-term commitment.
When Buying Might Be Smarter
- You have a stable income and plan to stay at least 7 years.
- You’ve saved a strong down payment (ideally 20 percent to avoid PMI)
- You have cash reserves for maintenance and repairs.
- The monthly mortgage fits within 30 percent of your net income.
Owning vs. renting isn’t about bragging rights—it’s about what makes financial sense for you right now. If you’re stable, debt-free, and plan to stay long-term, buying can build equity and lock in housing costs. If you’re in transition or carrying debt, renting is a smart strategy. Don’t let social media or friends pressure you—they won’t pay your mortgage. The smartest move is the one that keeps you financially secure. Your real goal? Own your life, not just a house.
(Damon Carr, Money Coach & Tax Pro can be reached at 412-216-1013 or visit his website at www.damonmoneycoach.com)
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