Buying a home is always a major decision that can greatly impact your finances for many years to come, but in a tumultuous economy, it’s even more important to be mindful during the homebuying process. It helps to seek guidance from financially successful people, like Kevin O’Leary, whose estimated net worth is about $400 million. “Mr. Wonderful” has a take on growing your wealth and better ways to invest in real estate for the long term.
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To ensure your home purchase doesn’t put you in a risky situation financially, the “Shark Tank” star shared one golden rule that every homebuyer should follow in 2025.
Only Buy a Home That You Can Comfortably Afford
In an Instagram video, O’Leary shared the one piece of advice he would give to anyone looking to buy a home in the current economy.
“My advice to anybody is to make sure that you do not pay more than one-third of your after-tax income towards a mortgage or you’re going get yourself in trouble,” he said. “You may have to downsize your house a little bit to abide by that rule, but if you’re paying more than one-third of your after-tax income to service your mortgage, you’re putting yourself in a very risky position.”
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Why You Should Stick To O’Leary’s Rule of Thumb
Putting no more than one-third of your after-tax income toward your mortgage may seem limiting, but it’s a wise way to set your budget.
“You have to live in addition to maintain the home,” O’Leary said in the video. “People think, ‘Oh, I just pay the mortgage payment on a home.’ But no — there’s taxes, there’s monthly maintenance and then there’s the risk of variability of the actual mortgage rate.
“Where people get in trouble is they put up 50% of their family income towards a mortgage because they want their home to be the most important asset, completely forgetting that there’s an additional 10% or 15% just to maintain the home and pay taxes on it,” he continued. “And that really starts to put a squeeze on them.”
Do Other Experts Agree?
Other money experts are generally in alignment with O’Leary’s advice. (Note that O’Leary is basing his rule of thumb on after-tax income rather than gross income.)
“Since housing is typically your most significant expense, keeping it reasonable, such as under 25% of gross income, is a good rule of thumb,” Laura Adams, host of the “Money Girl” podcast, previously told GOBankingRates. “That should allow you to create a spending plan to fund essential financial goals, like saving for emergencies and investing for retirement.”
A widely circulated rule of thumb is the 28/36 rule, which states that your total housing costs should not exceed 28% of your gross income, and your total debt shouldn’t exceed 36%.
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This article originally appeared on GOBankingRates.com: Kevin O’Leary: Follow This Rule If You’re Buying a Home Soon
