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I was posed that question the other day. The banks and some experts have a general rule that 30-40% of your take home pay should be the limit for housing.

You should be able to pay the mortgage, have enough to eat and do the things you want to do, and save up to have 6 months of savings available if you lose your job or get in an accident or something like that.

I have a lot of trouble telling people to buy a house when they are not already saving enough each month to cover the difference in payments. That represents the breakeven without all of the extra home costs: furnace goes, washer starts spewing water, etc…

People on the whole don’t like to sacrifice and telling yourself you’re going to make huge sacrifices to afford a place to live is the first step down the road of trouble.

The main argument against renting is that you are “throwing your money away” every month and building equity for the owner and not yourself. While that is true, generally real estate grows at about 1-2% over inflation. We’ve had some great years, which means it will average out at some point. You can do better investing the difference if that is really important to you.

And taxes should never be the cart that pushes the horse. Doing something for a tax break that might be worth 10% of the cost (my effective tax rate this year was 7.93%) skews people away from rational decisions with emotional arguments.

That’s not to say there isn’t a lot of benefit of owning your own home. We do because we need the space and a three bedroom apartment would cost about the same as our mortgage. But we also live in an area with an incredibly low cost of living. If we were out on the coasts, or even in my hometown of Chicago, I don’t know that we’d be owning a home right now. It just wouldn’t be worth it.