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.
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To ensure your home purchase doesn’t put you in a risky situation financially, “Shark Tank” star Kevin O’Leary shared one golden rule that every homebuyer should follow in 2025.
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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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Sources
Kevin O’Leary, Instagram
This article originally appeared on GOBankingRates.com: Kevin O’Leary: Follow This One Rule If You’re Buying a Home in 2025
