How Not To Be House Poor. How Much Mortgage Can You Afford?

by girlseeksjoy · Published December 18, 2020 · Updated January 22, 2021

We may earn money or products from the companies mentioned in this post.

Make sure that your home is a blessing, not a financial burden. Here is what Dave Ramsey says about having a mortgage and how much house is too much.

We are all susceptible to it. We work hard for years, maybe even decades, and we feel we deserve to live in a home that reflects how hard we have worked. I hear you. I do.

I have had an odd obsession with real estate from a weirdly early age. I remember when I was elementary school-age putting together an entire binder of floor plans that I had created. I tried to teach myself CAD when I was just a little wee one. And when I was in middle school, my parents thought about buying a piece of property and I would lay in bed at night imagining what our house would look like.

Straight up weird.

Then once I moved to Santa Barbara I officially got sick with the real estate bug. I dragged Nick (my hubby) to well over a hundred or more open houses before we ever got officially serious about buying a home. And that did not include the other multiple hundred home listings I sent him through his email.

I love real estate. I love homes. I love home staging. I love the whole dang thing.

So you can only imagine how much pressure my sweet hubby may have felt to jump into homeownership. Lucky for us, he is sturdy in his emotions and values and would often talk me off a ledge.

When we met our home (yes, when we MET our home), we both walked in and thought “this is my home.” We were on a getaway in wine country just outside of Santa Barbara staying in a little hotel, and that night after seeing our home, Nick could not sleep. He got up in the middle of the night to walk around the fast-asleep town to think. He scribbled notes all over the back of our hotel phone directory. A mind map of how we could make this work. Then he woke me up to tell me that we were going to buy this home.

That’s how he works. He wanted to make sure that buying this home wouldn’t derail our debt paying goals.

Being in California, real estate can sure make it difficult to stick to financial goals. And we wanted to make sure we stuck as close to “Dave Ramsey” rules as possible.

What Does Dave Ramsey Say About Having A Mortgage?

Is Dave Ramsey okay with mortgage debt? In short, no, not exactly. He himself doesn’t have a mortgage. He pays for things in the “speed of cash”. He recently just built a $50 million building for his company that he only built as he had the cash to do so. That is a commitment to his word, holy jeez. However, Dave will often say that mortgage is the only debt he “won’t get mad at you for”.

However, there are stipulations.

How Much Mortgage Can I Afford?

He says that if you are going to get a mortgage, you need to get a 15% year-fixed and be able to put at least 10% down. I would go a step further and say that you should have at least 20% down to avoid PMI, but we didn’t do that. We only had 10% down ourselves. It just feels like a waste to pay an additional few hundred dollars a month to this “penalty”.

Finally, your mortgage payment needs to be, taxes and insurance included, within 25% of your take home income.

So if your family income is $100,000, you should be able to put down 10%, while keeping your 15 year fixed mortgage payments (taxes and insurance included) under $25,000 for the year or $2,084 each month.

The Bank Approved Me For More…Why Is That?

This is what Dave himself said about that,

“Mortgage companies will qualify you for twice as much house as you can afford. They will put you on an adjustable rate mortgage for 30 years to where you are in debt up to your eyeballs and you cannot breathe. A payment like that can be up to 36% of your take-home pay. That’s just nuts.

Then you can’t figure out why you can’t go on vacation or why you got yourself into debt to buy groceries or why you can’t afford your kids’ college fund. It’s because you have a mortgage coming out of your ears. It’s called being house poor. The question is, do you want to be house poor? It’s not about what Dave Ramsey’s rules are.”

Dave set this as his “rule” for mortgages because he found that this amount still allowed people to thrive financially. Anything more than that, and life gets a whole lot harder and more difficult to reach your financial goals.

Not to mention, this leaves little to no room for maintenance costs that can pop up in the most unexpected of times. Home ownership can be expensive. A financial buffer is always a good thing.

No matter how glorious a home may be, the home that will feel the best is a home the home that is truly a blessing, not a financial burden.