Redditors Call Out Dave Ramsey’s Mortgage Advice as ‘Nearly Impossible’ If Not Wealthy — Is It Realistic?
Redditors recently called out financial guru and host Dave Ramsey about his stance on mortgages. According to a Ramsey Solutions article, his favorite way to pay for a home is with cash.
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“It may sound crazy, but people like you do it every day!” he wrote in the article.
According to him, the best way to buy a home is “the 100% down plan.”
While conceding that it may not be easy, he argued it’s worth it. The next best thing when it comes to buying a house, he said, is to take a fixed-rate mortgage with a 15-year (or less) term — and never a 30-year mortgage. In addition, your monthly payment should not exceed 25% of your take-home pay, he wrote.
“A $175,000, 30-year mortgage with a 4% interest rate will cost you $68,000 more over the life of the loan than a 15-year mortgage. That’s a lot of money you could use to build up your retirement fund or save for your kids’ college,” he wrote.
Yet, some Redditors took issue with his arguments.
“20% down, 15-year mortgage with the monthly payments being no more than 25% of your take home pay,” wrote one Redditor. “I just don’t see that happening? Unless your take home is more than 20% of the home’s value. Or maybe if you buy a 1 bedroom apartment in the bad parts of the country?”
Moneywise did the math to see how much you would have to make monthly to be able to afford a 15-year mortgage.
As it reported, homes in January sold for a median price of $402,242, according to Redfin. In turn, if you buy a $400,000 home with a 20% down payment of $80,000, the mortgage principal amount would be $320,000.
“With a 15-year fixed rate mortgage at 6.7% — the rate as of March 6 — you would have to make a monthly mortgage payment of around $2,823,” according to Moneywise.
And for the payments to not exceed 25% of your monthly take-home pay, you’d need to earn at least $11,292 per month before taxes, added Moneywise.
Some Redditors, in turn, called this discrepancy between his advice and the reality of many Americans “unrealistic.”
“His mortgage advice only works in limited markets and is unrealistic in many areas,” one Redditor posted.
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This article originally appeared on GOBankingRates.com: Redditors Call Out Dave Ramsey’s Mortgage Advice as ‘Nearly Impossible’ If Not Wealthy — Is It Realistic?
