Dave Ramsey Says This Common Mortgage Mistake Is Financially ‘Stupid’
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Gabrielle Olya
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Molly Sullivan
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Owning a home is a major financial milestone — but it’s only worth pursuing if it fits within your budget. Money expert Dave Ramsey recommends spending no more than 25% of your take-home pay on your housing expenses, including your mortgage principal, interest, property taxes, home insurance, private mortgage insurance and homeowners association fees.
When a mother of eight called into “The Ramsey Show” with her homeownership dilemma, Ramsey gave her some tough love. Here’s why he called her housing payment “stupid.”
When Your Mortgage Is Too Much
Katie, a stay-at-home mother of eight who lives in Utah, said that her housing payments were making her “crazy.” Her mortgage payment was $3,900 a month, and her husband — the sole earner — was making $120,000 a year through a combination of working full-time as a physician’s assistant at a clinic, picking up part-time work and donating plasma every week.
“Your house payment is 50% of your take-home pay,” Ramsey said. “It already was in the stupid zone as soon as you moved in.”
Katie noted that they bought the home to move out of her parents’ basement and so that her husband could be closer to work — but Ramsey doesn’t think they were financially ready for such a big move.
“You went from homeless in your mother’s basement to $4,000 a month,” he said. “This is not a small step — this was a great leap.”
Ramsey’s Advice: Sell the House
Ramsey’s recommendation was clear: Sell the house. He emphasized that the family was living in a home they simply couldn’t afford.
“The house payment needs to be more like a fourth of your take-home pay — not half,” he said. “Especially when you have eight little birds to feed.”
Finding a Reasonable Alternative
Katie said that she was willing to sell her house and move into a trailer, but Ramsey said that it’s not necessary to go to such extremes.
“Why don’t you just go do something reasonable, like [pay] $2,000 a month [for housing] and live out far enough away that you can find that?” Ramsey said. “Let’s get rid of this problem.”
Ramsey said it didn’t matter to him whether she found something to rent or buy — the priority should be to find an affordable monthly payment.
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