Can Most People Really Afford a House Following Dave Ramsey’s Mortgage Advice?

When it comes to affording a house, there are plenty of questions about exactly how much is too much. Depending on where you look and who you ask, there is no shortage of beliefs about only spending so much of your take-home income on a mortgage. 

For one Redditor posting in r/DaveRamsey, they are wondering if what Dave says about mortgage payments is accurate. Dave Ramsey needs no introduction in the world of mortgage costs, as he is a strong proponent of doing things a particular way. This Redditor is trying to decide if Dave’s advice is even possible, leading him to Reddit to try and see what others think. 

Current Mortgage Terms

According to this Redditor, they are in a situation where they are trying to determine whether purchasing a new home is a feasible option. Of course, the question isn’t just whether they can purchase a home, but how much of a new home they can buy. 

Based on their situation, they indicate that if they follow Dave Ramsey’s advice and stick with a 15-year fixed mortgage, it will be tight. Dave Ramsey’s advice, along with the 15-year belief, is that you shouldn’t spend more than 25% of your take-home pay on a mortgage payment.

With the Redditor earning around $5,440, they are only able to see themselves as being able to afford a $244,000 house. This is an immediate flag as they can’t find anything that isn’t a significant fixer-upper in this price range.

This leads directly to questions around how people are affording homes and whether Dave’s “Baby Step 6” advice is really practical. No question, paying off a 15-year loan sounds better than a 30-year loan, but this is only true if it’s practical financially. 

Baby Step 6

Dave’s advice on baby steps encompasses several methods to manage your finances. Among these steps is the idea of paying off your home early, which is why the 15-year mortgage timeline is considered. To be more specific, Dave says that for many people who are focused on paying off a home early, 10 years isn’t impractical. 

As part of this advice, he suggests making an extra payment once a quarter. This is especially true for those with a current 30-year loan, as it means cutting the timeline on owning your home in half. This means potentially owning your home outright in 15 years, rather than the traditional 30 years. The same applies to those who try a 15-year loan, as you can own your home in 10 years.

Not only can you own your home faster, but any instance in which you make more payments means you are paying less in interest. Interest is where most people get really stuck, paying hundreds of thousands more for a home. Any opportunity to reduce overall interest is well worth considering. 

Challenges Ahead

On paper, Dave’s advice sounds really great, but for most people, going from a 30-year to a 15-year mortgage timeline significantly increases your payment. The Redditor mentions that the average price of a home in the US is around $419,000. Assuming you put 20% down, with a 30-year loan, the mortgage payment is $2,167.62 at a 6.583% interest rate. 

Now, switch this up to a 15-year loan timeframe, and your mortgage payment, with everything else remaining the same, is now $2,997.30. This is a difference of $829, a not-so-insignificant amount of money to consider. 

The takeaway here is that $829 per month in savings is a substantial amount that can be set aside for emergencies, travel, college funds, or retirement. With interest rates being where they are, what sounds good on paper, around a 15-year mortgage, isn’t always practical in the real world for most people. 

If the question is, can most people really afford a house following Dave Ramsey’s mortgage advice? The answer is a resounding no. There is a far better likelihood for people to afford the home of their dreams on a 30-year mortgage than any other time frame option available to them.

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