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Ending up house poor could be a bad financial move.
Key points
- Most people who purchase a home need a mortgage.
- Borrowing too much could lead to monthly mortgage payments that are difficult to make.
- Dave Ramsey has some tips on how much income it’s safe to devote to mortgage payments.
No homeowner ever wants to miss a mortgage payment, or struggle each month to send their payment to the bank. Unfortunately, far too many Americans face the constant stress associated with worrying about how they’ll pay their home loan. This can happen to those who are house poor, or who spend too much of their monthly income on their mortgage costs.
When you’re buying a house, you’ll want to make sure you keep your mortgage payments low enough that you don’t find yourself in this unpleasant situation. If you aren’t sure exactly how much of your income you should use to pay for housing costs, personal finance guru Dave Ramsey has some advice that could help you decide.
Dave Ramsey has this advice for homeowners on their mortgage payments
On his blog, Dave Ramsey stressed the importance of calculating how much you can comfortably pay for your home before you decide how large a mortgage to take out.
Ramseys’ blog advises would-be home buyers that they should typically keep their total monthly payments below 25% of monthly take-home pay. This includes payments for:
- Mortgage principal
- Mortgage interest
- Property taxes
- Insurance
- Private mortgage insurance if you make a small down payment
- HOA fees
Ramsey suggests setting this 25% limit for a simple reason. By keeping your housing costs to a quarter of your pay, you won’t end up house poor and spend too much of your paycheck on your property. You will have plenty of money left over for other things, which can include accomplishing other financial goals such as investing for retirement and saving for home maintenance or big purchases.
Is Dave Ramsey right?
Ramsey is a bit more conservative than many financial experts when he suggests keeping your total housing costs to 25% of your budget. Generally, most people are told it’s a good idea to keep their housing costs below 30% of their budget. And many …….
