Dave Ramsey mortgage advice

[Scallywag]

Dave advices to never have more than 25% of your NET INCOME in house payments. Does anyone know if he's factoring property taxes into this or if he's only considering principal + interest?

Thanks!

[disneysteve]

25% for everything. PITI.

[kork13]

By the letter of what he teaches, YES -- 25% of income does include taxes & insurance (full PITI). I don't recall his stance on net vs. gross income, but personally I run everything financial off of gross.

That said, he also often says that it's a guideline, not a strict requirement. The idea is that you don't want to over-extend yourself with your housing costs. 25% of income can be alot as-is... But as you go even higher beyond 25%, it gets more and more difficult to sustain beyond all of your other household expenses.

However the higher your income, the less such strict adherence to the 25% guideline is probably necessary. 25% of $20k/mo is alot more manageable than 25% of a $4k/mo income (in isolation...not counting "growing into your income"). I still wouldn't suggest pushing that guideline too far though....besides, $5k/mo on housing is alot by any measure.

[disneysteve]

https://www.daveramsey.com/blog/5-steps-to-buying-home-wont-bust-your-budget

Here is a discussion from his site.

[Scallywag]

Thank you, both! We may need to relocate to Oregon or Washington then. Don't think it would work in California.

[kork13]

Thank you, both! We may need to relocate to Oregon or Washington then. Don't think it would work in California.

He often says that "math still works in California & NYC." Just because it's expensive there, doesn't suddenly mean that 30-40% of income for housing makes sense. It simply means that you need to have a larger DP, or a higher income to support your higher living costs. It's easy to justify, and many/most people do... But in the end, it comes down to you taking care of you, not worrying about what "everyone else" does.

My step-mother recently lived in California, and she often says that markets like Oregon, Washington, Nevada, Idaho, and Arizona are all getting much more expensive because so many people are fleeing the outrageous cost of living in California. She seems to be right.

[disneysteve]

He often says that "math still works in California & NYC." Just because it's expensive there, doesn't suddenly mean that 30-40% of income for housing makes sense. It simply means that you need to have a larger DP, or a higher income to support your higher living costs.

Yep. And you may need to make some big trade offs, like getting a way smaller house than you'd like or moving a lot farther from work.

I'm on the opposite coast and there are many people around here who work in Manhattan. They couldn't possibly afford to live in Manhattan so they live in New Jersey, often 60-90 miles away, and commute 2 hours in each direction every day. They leave home at 6am and get back at 8pm. I have a cousin who lives in central Connecticut and worked in Manhattan. For a while, he would go into the city on Monday, stay over for a couple of nights, and come home on Wednesday or Thursday each week. That was still cheaper than living in the city.

[Scallywag]

He often says that "math still works in California & NYC." Just because it's expensive there, doesn't suddenly mean that 30-40% of income for housing makes sense. It simply means that you need to have a larger DP, or a higher income to support your higher living costs. It's easy to justify, and many/most people do... But in the end, it comes down to you taking care of you, not worrying about what "everyone else" does.

My step-mother recently lived in California, and she often says that markets like Oregon, Washington, Nevada, Idaho, and Arizona are all getting much more expensive because so many people are fleeing the outrageous cost of living in California. She seems to be right.

i meant that I could not make the math work where i live unless I move 120 miles away, forcing my husband to sign up for a 3 hour commute two or three times a week. We could technically continue to rent but we're getting older and need a paid off in the 20 or so years left to retirement.

California is crazy. The average selling price of a home in my city is 1.25 million for a 2000 sq ft home on a 6000 sq ft lot. The property taxes alone would kill Dave's math. I know many people who fled CA over the years & really want to move but DH works in a very niche field and jobs for his skill set seem to be concentrated in CA, esp the SF Bay Area.

The other option is to invest in REITS that I can cash out and buy a small house in retirement. As i love to say, California is just flat out crazy.

However, it might all evaporate as we head into a student loan crisis. If no one wants to buy in (or can afford) cray cray CA, housing has to come down... eventually?

i am terrified for our future, esp if we head into retirement without a paid for home. Wish my DH had portable skills and we weren't married to this place. I would love nothing more than to move to Colorado or Maine or Texas & it's frustrating to not be able to do that.

[corn18]

i meant that I could not make the math work where i live unless I move 120 miles away, forcing my husband to sign up for a 3 hour commute two or three times a week. We could technically continue to rent but we're getting older and need a paid off in the 20 or so years left to retirement.

California is crazy. The average selling price of a home in my city is 1.25 million for a 2000 sq ft home on a 6000 sq ft lot. The property taxes alone would kill Dave's math. I know many people who fled CA over the years & really want to move but DH works in a very niche field and jobs for his skill set seem to be concentrated in CA, esp the SF Bay Area.

The other option is to invest in REITS that I can cash out and buy a small house in retirement. California is crazy.

Then you are no different than someone making $50k / year trying to buy a $250k house. The math doesn't change just because you live in SF. Only your attitude towards the math changes. Doesn't make it right or good.

[Scallywag]

Then you are no different than someone making $50k / year trying to buy a $250k house. The math doesn't change just because you live in SF. Only your attitude towards the math changes. Doesn't make it right or good.

Er where did I say the math should change? I said I could not make the math work where I live and I don't intend to. I've been listening to Dave Ramsey for far too long to ignore his advice. I am just venting my frustration at my life situation.

[greenskeeper]

We're at about 50% with the extra money being thrown at the mortgage...pay that baby off ASAP....4 years to go at worse.

[Nutria]

We're at about 50%

I don't think that's what DR means.

[LivingAlmostLarge]

The 25% PITI doesn't work even renting in HCOLA. You have to do what makes sense for where you live. People in HCOLA just are used to paying 50% of their income or something ridiculous for housing.

[Scallywag]

The 25% PITI doesn't work even renting in HCOLA. You have to do what makes sense for where you live. People in HCOLA just are used to paying 50% of their income or something ridiculous for housing.

Yes, we're planning not to not renew our lease & to move to an area about a 2-hour train commute away. It's not ideal but we don't have an option.