Should We Buy a House or Rent?

Michelle and her husband are newly married and currently renting. They are paying $1,200 a month. What range of houses should they look at with an income of $7,000 a month?

QUESTION: Michelle in California and her husband are newly married and currently renting. They are paying $1,200 a month. What range of houses should they look at with an income of $7,000 a month?

ANSWER: You need to clean up the debt, and you need to build an emergency fund of three to six months of expenses. Then you need to save a down payment. Then what we recommend is that you buy a home where the payment is no more than a fourth of your take-home pay on a 15-year, fixed-rate mortgage. At 3.5% on a 15-year fixed right now, that would be about $250,000 for you, because a fourth of your take-home pay is about $1,750, and I ran the numbers while we were talking. But you’ve got to get the other stuff cleaned up before that makes sense.

You need to look around and say, “What is more important to me—horses and boats or home ownership? I’d never get rid of that horse, but I’d part with that one.” That brings some money in towards the debt and it cuts down the stable bill. “I’d love to have a boat, but it’s not nearly as important as being debt-free and owning our own home someday soon.” Those kinds of things.

I don’t know, but that’s kind of how we would look at it, and I’ve got to tell you we’re fans of both—horses and boats. Bigger fans of boats. They don’t eat as much. I’m not mad about either one, but you’ve got three things there pulling at you as a priority: home ownership, horse ownership and boat ownership. And they’re pulling at each other. They’re limiting each other—your enjoyment of any of them or getting there—so you really need to say, “I’m willing to wait a little while longer so I can keep the boat.”

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