Should we Buy This House If The Mortgage is Double our Rent?

Here is a recent scenario I was discussing with a young couple who are first-time homebuyers considering a $360,000 house. They are currently renting a smaller apartment for $1,400 p/month. Key stats and pertinent points:

Income: $140,000 combined, $7,800 per month after taxes
Pre-approved mortgage: $400,000
House price: $360,000
Down payment: $45-50,000
Estimated monthly mortgage (with taxes): $2,750
Current rent: $1,400

Concerns:

• Doubling monthly housing payment
• Feeling hesitant about such a large decision

Positives:

• House checks all their boxes
• Great neighborhood
• Move-in ready
• No other house has matched its appeal

Financial situation:

• Able to save $2,400/month towards down payment
• Family friends in real estate believe they’re in good shape to buy

Their Perspective:

This couple is financially stable and has carefully considered their options. While doubling their housing payment is a concern, they are confident in their ability to afford the mortgage and believe the house is worth the investment. They were seeking an objective opinion to confirm their decision.

My response/opinion

The “double our rent” part is not relevant. Instead look at the fact their annual income is $140,000 and the house they want costs $360,000.

They making over 2.5x of the monthly payment and taxes, and likely to see their incomes grow. So the decision is easy, buy the house!

Don’t get sucked into anchoring to rent, instead look at your ability to afford an appreciating asset (that you like) based on your actual and projected cash flows.

Also compare what it would cost to rent this house versus mortgage. Not your current apartment which is likely smaller and does not meet the house criteria that got you looking to move in the first place.