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 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.
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.
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.
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.
A big problem with mortgages is the escrow payments as insurance and property taxes increase, that’s a big hit on your monthly payments.
Having to have a combined income of $130-$140k for a $400k house with a 15 year mortgage is not unreasonable.
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.
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.
Dave is right. If the math doesn’t work our for you, look for a smaller/cheaper house.