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Why Dave Ramsey’s Recommended Minimum Down Payment Will Surprise You – The Motley Fool

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Dave Ramsey ideally believes you should pay cash for a house, …….

Image source: Getty Images

Dave Ramsey ideally believes you should pay cash for a house, but his recommended minimum down payment is surprisingly low.


Key points

  • Dave Ramsey recommends paying cash for a house when possible.
  • However, he says it’s OK for first-time buyers to put as little as 5% to 10% down on a home.
  • This is surprising because of his anti-debt stance, and also because it would leave a home buyer paying for mortgage insurance.

When you buy a house, you typically need to put some amount of money down. Lenders require you to do this in order to reduce the risk that the house will end up not being worth enough to guarantee the mortgage in full.

It’s also a good idea to put money down so you don’t end up owing more than the house is worth (this is called being underwater). This could make it very difficult to sell if you needed to because you would have to come up with the remaining cash to pay down the loan.

Although lenders require some down payment, you typically can choose whether to make a small payment or a large one. This can be a difficult decision because the bigger your down payment, the less your mortgage costs — but the more money you have to save up before you can buy.

To help you make your choice, finance expert Dave Ramsey has some advice — and it’s actually pretty surprising from the well-known anti-debt guru.

Here’s why Ramsey’s advice is so surprising

Ramsey’s minimum recommended down payment is much lower than you would expect it to be, given that he recommends avoiding debt whenever possible and ideally suggests buying a house with cash if you can afford it.

So, what does Ramsey suggest is the minimum you need to put down? “If you’re a first-time home buyer, a 5–10% down payment is fine,” the Ramsey Solutions blog says.

The fact that Ramsey says it is OK to buy a home with so little down is really surprising for a few reasons.

First and foremost, as Ramsey acknowledges, if you put down less than 20%, you are going to get stuck with an added payment for something called private mortgage insurance (PMI). “Anything less than 20% is considered riskier for a lender—so to cover their butts, they …….

Source: https://www.fool.com/the-ascent/mortgages/articles/why-dave-ramseys-recommended-minimum-down-payment-will-surprise-you/

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