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The Dave Ramsey Approach To Mortgage Debt

19 April 2010 11 Comments

Dave Ramsey has an interesting approach to how much you should borrow for a home purchase.  While many say the rule of thumb is that your mortgage shouldn’t be more than a third of your income, Dave’s approach is much more strict.

The rule that Ramsey uses is that your payment on a 15 year mortgage should not exceed 25% of your take home income.  I would guess that 90% of homeowners are out of line with this standard (myself included).  This is a very conservative approach and would definitely limit the price of the homes you’re considering.

With the housing bust, you have an opportunity to purchase much more house for the money than in recent years.  The smarter financial decision would be to resist the urge to buy more house and instead, buy the same amount of house for significantly less money.  This would surely be in line with Ramsey’s idea of keeping your payment under 25% of a 15 year mortgage.

I love it and wish I had heard this advice prior to purchasing my current house!

How about you?  Is your mortgage payment in line with Ramsey’s standard?


  • Roshawn @ Watson Inc said:

    Our mortgage payment is in line with DR's rule, but we were listening to him back then too.

  • michael61 said:

    I followed his other mortgage advice – I payed off my mortgage last year. Though I admit I'm not in my 20's.

  • Crystal @ BFS said:

    My husband and I bought our house on a 15 year mortgage in 2007 (we were 23 and 24 respectively). Our payment is $740 a month (we don't escrow), but we've paid $900 since the mortgage started. That was about 20% of our take home pay…about 15% now.

    If you include property taxes, our mortgage and overpayment is about 20% of our take home pay currently and 25% when we first bought our home.

    I didn't know about Dave Ramsey when I was 24, but it sounds like good advice.

  • Wingtipwalker said:

    I budget as though my wife has no income (because she won't when we have kids, probablly 3+ years away), and on that standard our mortgage (incl tax/interest) is about 29% of net. I was shooting for Dave's 25% rule but that's as close as I came. Include the wife's current income and we're down around 18% or so of net.

  • 20smoney said:

    Very good!

  • Mike said:

    I think Dave Ramsey's advice is great. So many people waste away their money and don't even notice it.
    His plan keeps you focused.
    Right now, I am on step 6, trying to pay off my $86,000 mortage by age 30, less than 5 years after I got it.
    And yes, I am also in the stock market.
    It's a tough challenge, but blogging about it has helped me stay focused!

  • Dave said:

    Keep it up, you can do it!

  • Larry Fry said:

    There are so many approaches on mortgage. It just depend on which you prefer. Utah mortgage loans has so many approaches too.

  • crisis_today said:

    A lot of people are asking themselves if they are getting good deals of mortgages. They are asking a lot of questions of forums, like this: http://www.financialcrisistoday.org/forum/Credit/… The most significant thing about a mortgage is the interest rates. The lower the interest rate the less money you have to pay back over the mortgage term.
    Each of the mortgage lenders has its own standard variable rate (SVR) of interest. These can vary by several per cent, but most lenders will be within a couple of per cent of each other. it's generally best to avoid mortgages with an extended redemption penalty that is, a penalty that lasts longer than any initial fixed or discounted interest deal. The rule of Ramsey brings another rule in the equation, limiting the price of the house, making one sure that they afford it. We should certainly have this in view, no matter how conservative it couls be.