Home Consumer debt How much house can you afford? Here’s what Dave Ramsey says

How much house can you afford? Here’s what Dave Ramsey says

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You might be surprised at the number.


Key points

  • Taking up too much space could cause you to fall behind on other bills.
  • Financial expert Dave Ramsey has some advice on housing affordability.

It’s no secret that buying a home can be big business. In fact, one mistake people make when switching from renting a home to buying a home is thinking that they can just swap their monthly rent payment for a mortgage payment and call it one day. The reality is that when you buy a home, you incur a host of additional expenses that could put a strain on your budget, if you’re not careful.

So how much house can you afford? Financial expert Dave Ramsey suggests keeping your housing costs at 25% of your take home pay or less. And that’s good advice to follow.

Don’t overdo it when buying a house

You will hear different opinions about how much of your income you can comfortably spend on housing. Some people will say that you can spend up to 30% of your take home pay to put a roof over your head without having to worry about falling behind on other bills or becoming housing poor.

Ramsey’s 25% limit is a bit more conservative. But that’s not necessarily a bad thing.

You see, Ramsey really hates the idea of ​​unhealthy consumer debt, so he tends to advise people to spend cautiously to avoid having to rack up expensive loan and credit card balances. Keeping your housing costs at 25% or less of your income could help you avoid this undesirable scenario.

How to calculate your housing costs

When Ramsey talks about spending no more than 25% of your take home pay on housing, he doesn’t just mean that your mortgage payment itself shouldn’t exceed that 25% threshold. This 25% limit applies instead to your mortgage more all of the following expenses that homeowners tend to incur:

  • Property taxes
  • Home insurance premiums
  • HOA fees, if you are buying a home that is part of a homeowners association
  • Private mortgage insurance, which applies when you take out a conventional mortgage without paying at least 20% down

Now, some financial experts will advise you to include predictable maintenance in your housing cost calculations. Ramsey ignores the interview in his number. But if you want to play it safe, feel free to do so.

Remember that it’s okay to go wrong by spending less on a home. The worst thing that can happen is that you may sacrifice upgrades or square footage in exchange for lower costs. If you can live with that, you just have to save money and manage homeownership more easily.

Run these numbers

Buying a home is quite a difficult decision to undo. If you sign a lease for a rental and later regret it, you may have the option of terminating your lease or moving on without it. But when you buy a house, you’re spending a lot of money on closing costs just to set up a mortgage. And usually you have to stay in your home for a few years to recoup those costs alone.

That’s why you’ll need to be careful when buying a home and make sure you don’t overstrain yourself financially. In fact, it pays to use a mortgage calculator to see how much house you can afford. This could allow you to approach home ownership with more confidence and a lot less stress.

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