Posted on 03/07/2024 9:26:22 AM PST by where's_the_Outrage?
Radio personality Dave Ramsey has been called out online for delivering out-of-touch real estate advice to homebuyers.
“Is it even possible to follow Dave Ramsey’s advice on a mortgage?” one person asked on Reddit — and their skepticism makes sense when you do the math.
The ideal way to buy a home, according to Ramsey Solutions, the finance guru’s website, is to buy it outright in cash.
But if you’re not sitting on a mountain of money, Ramsey Solutions says the only home loan you should consider is a conventional, fixed-rate mortgage with a 15-year (or less) term. Your monthly mortgage payment also shouldn’t exceed 25% of your take home pay.
“I just don't see that happening,” the Redditor wrote, “unless your take home [pay] is more than 20% of the home's value, or maybe if you buy a one-bedroom in the bad parts of the country.”
Are they right that Ramsey’s mortgage advice is unrealistic for most Americans — or are these risk-averse recommendations reasonable? Here’s the math.
U.S. homes sold in Dec. 2023 went for a median price of $402,045, according to Redfin. For simplicity’s sake, let’s say you buy a $400,000 home with a 20% down payment of $80,000, leaving you with a mortgage principal amount of $320,000.
With a 15-year fixed rate mortgage at 6.66% — the rate as of Feb. 14 — you would have to make a monthly mortgage payment of around $2,815.
For those payments to be no more than 25% of your monthly take home pay, you’d need to earn at least $11,260 per month before taxes — and that doesn’t factor in additional housing costs such as property tax, home insurance and utilities.
(Excerpt) Read more at moneywise.com ...
consider is a conventional, fixed-rate mortgage with a 15-year (or less) term. Your monthly mortgage payment also shouldn’t exceed 25% of your take home pay.
Sounds like smart advice.
Another option that I used is to get a 30 year mortgage and pay it off early by doubling payments. You have some control over the amount of interest paid.
It’s ideal to get a 15 year mortgage, but a 30 year mortgage gets you a bigger better house and it’s better than renting.
If you can’t afford to buy a house, you can’t afford to buy a house. And his target market isn’t folks that have good financial discipline.
Ideal would be to buy a house with a 30 year mortgage, and then make an extra payment PP&I payment every month. But his customers aren’t likely to actually do that.
Same thing with his credit card advice - he says pay off smallest to largest. Ideal would be pay off highest to lowest interest rate, but he knows that his customers need to be able to see progress to stay with the program.
This property bubble and un-affordability can continue for a very long time.
The US is heading in the direction of other countries, which suffer from socialist central-planning, large debt burdens, government policies that limit housing supply, inflation, lower-standard of living for working-class, etc... - where buying a home involves generations contributing to payments and bubbles are kept going for decades
I’m thinking of places like China, Japan, or even now Canada.
> The advice is right but it doesn’t work under Bidenomics. <
You beat me to it. Everybody is hurting. Unless of course you’re an illegal alien living in a Democrat city. Then all levels of government will rush to your aid.
The problem I see with so many younger buyers now is that they don’t want or are not willing to build any sweat equity.
They expect to move into the right neighborhood, the perfect house with a fancy kitchen, three bathrooms and a nice backyard.
Even when I was looking to buy my first house in the late 1980s, younger people bought FIXER UPPERS. Then they fixed them up over time.
I blame HGTV.
The advice is right, but the housing market has moved up so much that you will get much less house than you would have 3 years ago.
The alternative is to not follow the advice, get a 30 year mortgage, and have almost no equity after 5 years.
I see this mistake made often regarding home ownership.
The median is the number where half of the sales were below and half were above.
My wife and I faithfully paid an extra $100 each month in principal, and paid our mortgage off in 15 years instead of 30 years.
Related:
California proposes zero down, no payment home ‘loans’ for illegal immigrants
By Kenneth Schrupp | The Center Square Mar 4, 2024
Excerpt:
“The program in question — the California Dream for All Shared Appreciation Loans program administered by the California Housing Finance Agency — started in 2023 with $300 million set aside for 2,300 applicants, and ran out of funds in just 11 days. This year, the program will require applicants to be first-generation home buyers and reduce maximum income thresholds to 120% of county median household income. Under the program, applicants can secure “loans” of up to 20% of a home’s purchase price to first-time home buyers — the cost of a down payment — with zero down payment to the CHFA, and no payments on the “loan.”
The state’s “loan” can potentially be repaid when the home is refinanced, sold, or transferred, with the borrower paying back the original loan amount plus 20% of any increase in value on the property. Unless a property loses more than 80% of its purchase price, the state will not directly lose money, but without any provisions on how long a property can be held for — including what happens with certain kinds of trusts, such as right-of-survivorship trusts — it’s not clear if the state can ever get its money back if a family decides to hold on to the home.”
First time buyers shouldn’t be beuying a house for $402,000.
That was the conventional advice for decades, but it only works now if you can find a home for no more than $100,000. In our area, you can find plenty of homes under $50,000, but it will be an older fixer upper. Certainly not what most “influencers” would want. Social media (and media in general) have ruined our country with unrealistic expectations.
Dave Ramsey is a fraud. Who would listen to this guy? He just has simpleton ideas about money.
He is like the doctor who tells you to exercise, eat your vegetables, take two aspirin, and call me in the morning.
WOW! I didn’t know that!!!!! /S
Oh yeah, diversify your portfolio. BRILLIANT! Dave.
This.
It’s ideal to get a 15 year mortgage, but a 30 year mortgage gets you a bigger better house and it’s better than renting.
~~~
Yes, and it’s interesting what a big difference interest makes. I once took a 30 year mortgage, and two years later interest rates dropped but over two points, so I was able to refinance it to 15 years at the same monthly payment.
With Bidenomics and today’s interest rates, these poor young folks are either going to have to over leverage themselves in mortage debt, or settle for an undesirable ‘starter home’. After 2020, a lot of people fled urban and near-urban areas, lowering housing costs, it’s a huge gamble to assume that wont happen again or ignore increases in crime so I think a lot of people are staying/moving home with their parents are sharing the costs and living in groups.
Even thought there countless YouTube videos claiming that the real estate market is topping out/cratering/coming off. So, you better subscribe to their service/AP.
The fact is that there are just not enough houses being built in most places in the country. Especially, in the upper midwest and the northeast. There is virtually no inventory in many metro markets.
The only thing that MAY be beginning to be overbuilt is apartment complexes. They built the crap out of them for the last 6-7 years.
If you must take a mortgage, it is better to take a series of small ones with short payment periods, like 5 years or less. Use your paid off mortgage as a downpayment to a larger mortgage until you get the house you want that you can afford. Then, never move.
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