We went at 1 times annual income. WOW, at 3 times we could have an McMansion on 2 acres around here, but of course that is probably what the rest of the country spends on a normal home. OK is great as far as the cost of living.
I wish we could have purchased a home in Connecticut for 1X annual income. At the time we bought, we spent about 2.5X our annual income (purchase price/gross annual income) - and we bought a "cheap" house compared to many of our peer group (our income is also lower than those folks due to Mr. Bug earning less than me). Even with Mr. Bug out of work for 8 months now, we can comfortably afford our house - but the mortgage and my student loans are our ONLY debt. We own our cars outright and don't use credit cards. A full half of our monthly expenses is the mortgage payment.
We do have PMI due to the fact that when we bought (30 year fixed @ 5.125%) we didn't have the money to put 20% down PLUS pay all closing costs (we bought in early '06). We still put $10K down, but that only amounted to approx. 5%. Then we paid another several thousand in closing costs. 20% down on a $190K starter home is still close to $40K. I don't know of many couples in their 20s who can rustle up $40K in cash - and had we bought in a more desirable town/location our $190K starter house would have been $300Kish at the peak.
Part of the problem is that young, college-educated couples today have a societal expectation that they get married, buy a house, then have kids. I was born when my parents were living in a 2 bedroom rental apartment, and they didn't buy a house until their 30s. My in-laws rented throughout their 20s and built their house shortly after my husband's older sibling was born. Today, when friends of ours got unexpectedly pregnant a few months after their wedding, there was a mad rush to buy a house so that they weren't bringing baby home to a rental (as if it was some horrible thing! They bought a condo which they promptly sold for a serious profit only 2 years later when baby #2 was on the way. They maxed out their buying power on a house at the peak of the market and are now struggling to refinance). Buying a home is THE thing to do to demonstrate that you're (in theory) a responsible, self-sufficient adult. 30 years ago, it was starting a family and taking responsibility for children. Now you buy a house first. Our friends were horrified that Mr. Bug and I made do in a 1 bedroom apartment for a year after we got married...everyone expected that we HAD to buy a house right away because it's what everyone else does.
In a different part of the country, for the $190K that we spent on our little 3 bed/2 bath Cape Cod with no garage on 0.25 acre, we could have had a new construction McMansion. Sort of depressing, in a way. Oh well - we made the decision to buy when we did and our house is primarily a place to live, not an investment.
