Comments on: 25 Rules to Grow Rich By #3: Buying a Home

By: Bonnie

Bonnie — Wed, 16 Sep 2009 02:20:21 +0000

This sounds like a nice rule, but completely unrealistic where I live. Using this rule, assuming an annual income of $100K/yr, a 20% down and a total mortgage of $250K, you’d be able to purchase at best a 1-BR condo, which wouldn’t be a realistic living situation for an average family of 4.

By: Lee

Lee — Sat, 12 Sep 2009 10:30:03 +0000

Here in the UK a >20% deposit is becoming the only way to unlock the good mortgage rates. If the difference between 20% down and 30% down is a 5% rate reduction (resulting in significantly lower monthly payments), I posit you’re better off making the 30%.

If 30% and 40% saves you a further 2%, then it would make sense to make the 30% and invest the difference. A 2% return is not difficult even in our current economic climate. 5% is possible with care but the 7% would be unattainable here right now without real prolonged luck.

By: Kris

Kris — Fri, 19 Jun 2009 18:57:33 +0000

I wonder if you think investing anything over 20% rather than increasing your down payment is still sound advice?

By: Roger

Roger — Mon, 14 Jul 2008 11:21:20 +0000

The first part of the rule seems pretty sound, although, as Jeff noted, there are different kinds of debt; someone with $20,000 in debt at 4% is in a much better position to take on an $80,000 mortgage than someone with the same amount of debt at 18%, even if they make the same amount of income.

As for putting 20% down on a mortgage if possible (and no more), that seems pretty sound.

By: Mousebender

Mousebender — Fri, 09 Feb 2007 18:55:00 +0000

One obvious implication: Leave California!

By: Jeff

Jeff — Sun, 03 Dec 2006 04:43:10 +0000

Trent — even after MoneyFwd pointed it out, you made no admission that you misstated Money’s rule — spend no more than 2 AND A HALF times your income on a home.

Actually, I think both rules are oversimplifications because they don’t take interest rates into account, and you don’t take into account the KIND of other debt a person might have, and at what interest rate. You rule seems to forbid the use of student loans, by the way — by the time I sat down to my first college class, I had taken out a loan that was more than double my annual income. I sure hope nobody out there is taking this rule literally.

By: Trent

Trent — Wed, 15 Nov 2006 19:48:43 +0000

Exactly. You should never find yourself more than double your annual income in overall debt. So, if you bring in $100,000 and have $20,000 in debt, you should not buy a house costing more than $180,000.

By: Frugal Frugalson

Frugal Frugalson — Wed, 15 Nov 2006 18:01:34 +0000

BTW, the Money Magazine Rule #3 stated spending no more than 2½ instead of 2 times your income on a home. One thing that I don't like about this rule is that it makes home ownership only available to high income earners where I live. I mentioned this in my blog, since I found it surprising that it would require an income of $144,000 per year to buy a median priced home in Massachusetts. Scary stuff...

By: MoneyFwd

MoneyFwd — Wed, 15 Nov 2006 17:12:31 +0000

Are you saying don’t allow your debt (all loans plus mortgage) exceed twice your take income?

So if you make $100k a year, have $20k in debt, don’t buy a house worth more than $180k (after downpayment). Are you assuming that your savings (like downpayment amount over the 20%) offsets the total mortgage and loan amounts?