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 ...
Such as saving 30% or more down and getting a mortgage for the rest. IMHO when people go through the financial discipline to save up for a large down payment, they've trained themselves how to make the mortgage payments from then on. Often they have margin in their budget to invest into their Roth IRA's or Roth 401K's (assuming they still have the saving mentality they had back when they saved up for a down payment while renting).
It used to be possible for a younger person or couple to rent a low end apartment or small home and put money away for a down-payment on a house. At this point, there really aren't any "low end" apartments or small homes to be had. They've all been bought up by the Blackrocks or other mega-property management companies who charge confiscatory rates for even a small 1 or 2 bedroom apartments. Throw in the Biden grocery and utility bills and a young family's only viable option for saving any money is going to be moving back in with mom or dad.
Oh yeah, diversify your portfolio. BRILLIANT! Dave.
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This is the second dave ramsey article post I’ve seen here within the last month where the article portrayed his advice as controversial, but it looks like click-bait to me and it doesn’t like organic controversy at all. Sorry. Just my opinion.
A big problem with mortgages is the escrow payments as insurance and property taxes increase, that’s a big hit on your monthly payments.
“I blame HGTV.”
If people have enough money to blow on cable TV or a streaming service, then they have themselves to blame.
People are also blowing their money on $100 a month cell phone service, $6 for a latte, lottery tickets, cigarettes, going out to eat and all kinds of other of the latest things. I don’t feel sorry for any of them. And again, they can blame themselves.
“half of the sales were below”
This goes back to my point. The sales that were below are smaller houses in less desirable areas. Many of these house also need work. Some, lots of work.
The house I bought 12 years ago was one of those houses. I have redone every room in the house. I have replaced every exterior door except one. I removed all the carpets. Sanded and refinished floors. Remodeled every bathroom. I have also replaced about half of the exterior trim.
This is WHY the house sold at a discount to the market.
Then they vote Rat, because they think the Rats will forgive their debts.
Saving 30% down on a $400,000 home ($120,000) is not realistic for an under 30 couple unless they have a very substantial income. They can't even pay off their student loans...
Son-in-Law #1’s mother has convinced him and Elder Daughter that buying a house is stupid and they should rent for their entire lives. We can’t seem to get them to understand that home ownership saves them money in the long run AND guarantees them a place to live when it’s paid off.
Having to have a combined income of $130-$140k for a $400k house with a 15 year mortgage is not unreasonable.
“I blame HGTV.”
And, I forgot the biggest waste of money for most people is having to have a new car frequently.
You forgot the biggest waist of money. Something you buy and immediately loses value.
AUTOMOBILES
This is where Dave Ramsey’s advice is correct. buy a two year old car that is already 1/3 or more depreciated in value. Then drive it into the ground. Leasing cars is the worst way to waste money.
Well, the statement is technically correct, and that advice is for those who have that ability. However, it is not feasible for most. But then he wasn't really talking to them at all.
His audience are financially naive people, not Warren Buffett. His advice works for the most basic of financials, but those people need the most help in order to avoid getting in over their heads.
Ramsey teaches that before you buy a home you need to pay off all of your debt and have a 3-6 month emergency fund in place. This is very good advice; I didn’t take it and it caused us all kinds of stress. But alas, we finally got sick and tired of being sick and tired, implemented the 7 Baby Steps and now our stress levels are low because we have no debt, a 10 month emergency fund, a paid for home/cars/kids college and are putting close to 40% of our income into retirement accounts. But having said all that I don’t care what other people do with their money.
Yes, but the problem is buyers at this level stretching for too big a house and not having enough resilience when things go wrong.
The 30-year route gives you more wiggle room in a downturn.
Best for them is to buy a small home in a stable area.
Yup.
1) If you can follow Dave Ramsey’s advice, you will be smiling and secure for the rest of your life.
2) It’s 2024. Very few people today can follow Dave Ramsey’s advice.
Wages have not kept pace with inflation for the past 40-50 years. In fact, I believe that average US purchasing power really peaked in 1971. It’s all been downhill since then. And housing costs are the worst. In my area, starter homes start at around $500,000. There are tons of young people who can’t manage to get anything like a decent job — how are they going to buy a $500,000 house? I guess they should save until they’re 60 and then buy a house with a nice 15-year mortgage?
Ought my first home on a VA 8%. Zero. Down. Payment was about 30% of my monthly net. Happy as a clam until i needed a new hvac. Getting into a home one can barely afford leads to financial hardship. Muddled through and sold in 3 years. Today the norm is to stop making payments and move on after foreclosure. When all the CRE comes due soon and the zero down no income crowd walks away we have 2008 all over again.
It’s also the most financially unstable that tends to benefit most from the snowball approach.
“A big problem with mortgages is the escrow payments as insurance and property taxes increase, that’s a big hit on your monthly payments.”
Insurance and taxes are homeowner expenses but not part of the mortgage.
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