How Much Of A Mortgage Payment Can We Afford?

[Music] matt is with us in rochester new york hi matt welcome to the ramsey show hi dave and christine thank you for taking my call sure what's up so my wife and i we are i'm 31 she's 30. we're in baby step 3b thanks to your guys teachings that we have been following for almost three years now so thank you thank you um so we're getting to that point where we're looking to become homeowners but it's a little bit more complicated now that home prices are quite a bit higher than they were you know year over year and interest rates are going up too so one of the things that i wanted to confirm is when you guys say to budget 25 of take-home pay for a 15-year fixed-rate mortgage that does not include retirement and college funding right but it does include property taxes insurance hoa fees etc yeah i would just be your house payment so the point is this you can qualify for almost double that payment and when people do that you know what happens they got no money they become house poor that's why they call them mortgage brokers exactly you got the plan and they become house poor because you're broker and broker and so but you then the next time a car comes up it becomes a car payment because you've got no margin to save up for the next car next time the heat and air goes out you got no margin if it's over the emergency fund you're screwed because you you can't cover it and so because it's all going to a stinking house payment because you saddled yourself with that so you're obviously not going to go that far over into the land of stupidity our guideline at 20 our guideline of 25 of your take-home pay meaning uh whatever you're coming home with not counting uh just a taxes taxes out of your check is all what would you get home after tax now if you got uh if you got health care coming out even health insurance i don't you can take that out of the equation if you want i don't care the point of the whole formula is not the nuanced exact percentage the point of the formula is keep a small enough house payment that there's margin in your life and do it on a 15 year so you can get the house paid off because that's what millionaires do absolutely so this past weekend we actually got pre-approved for a mortgage payment that was 29 of our take-home paid now this was percent 30-year conventional fixed rate and the problem was as well as with the closing costs and the down payment that was going to have to dig into our baby step 3 fund so i know obviously that is not something you guys would recommend basically what i was working on was so i built my own mortgage calculator where the property taxes so we live in new york so we have pretty high property taxes so on a 200k property you're looking at about 6 300 a month or sorry 6300 a year in property taxes so 550 a month hazard insurance of about 75 dollars prepaids so and then for the closing costs prepaids are not monthly they apply that sets up your account to pay your taxes and insurance right right so for our closing costs yeah so for for our prepaids we were quoted 81.05 and our closing costs of 62.73 so just out of curiosity i created a calculator where if say we were going to go look at a 175 000 house it would calculate those down to three quarters of that hundred thousand dollar quote just for rough math so i looked into okay like if we took out a fifteen year fixed rate at four point nine two percent which is what the average fifteen year fixed rate is running at so with our take-home pay we could afford just for the mortgage not counting the property taxes and insurance about 957 dollars a month but even out of 175 thousand 000 property that calculates out to about 53 000 dollars 400 down plus the prepaid i'm going to stop so i'm what's your question well so i guess the question is is if we're going to be running for a while longer would it make sense to potentially start doing baby step four so i have a roth 401k you can do whatever you want baby step 3b is zero going into retirement up to 15 going into retirement and baby step forward and obviously the more you put into retirement the less you're going to put into your down payment fund yeah yeah and so and the more you know and what you're trying to do is get into a house at this stage of the game and so here what do you guys do for a living so i'm a business analyst and my wife is a teacher age so what did you make two years ago three years ago what were you making before covid uh before well actually i've had pretty good pay raises that's what i'm asking two yeah so two years ago i was at 60 000 and my wife what do you make now she's 75 i do okay and so if you take out a 29 today in two years it's gonna be 25 percent right okay and if that's pr principal interest taxes and insurance on a 15 year you know that's not the end of the world my point is not to take out you know 38 which you can qualify for right right and you don't want to do that and but don't over nerd this okay it's a concept the concept is big stinking house payment means no money so the concept is get reasonable house payments so there's margin and i can get through getting this thing paid off but if you've got an income that's on an upward trajectory like yours is you're going to be at the 25 within 18 to 24 months and you're not going to have wholesale violated this concept and made yourself house poor that's what we're trying to avoid not trying to figure out some hard and fast parasitical rule the the the reason we teach you this is to limit your keep you from going out test driving bentley's and then having to buy a chevrolet it's just hard to do that yeah that was my thought is it's not to be legalistic it's not to try to follow technicalities it's to give you freedom in the long run and to build wealth we don't want you tied into something that's going to really stress you out long term and prevent you from really building wealth yeah but i mean you know hey i couldn't do it it was a 25.5 percent of my take-home pay oh shut up that's not what we're talking about okay and that's not this guy but i mean if you get to the point understand the reason for these things and then like make grown-up decisions based on that guys that's what we want you to do this is the ramsey shop

Channel: The Ramsey Show Highlights

Views: 182,471

Keywords: the dave ramsey show, budget money debt cash, real estate, insurance, how to make money, dave ramsey, save, credit card, compound interest, buying house, buy, snowball, How Much Of A Mortgage Payment Can We Afford?

Id: KPvXySb37cM

Length: 7min 44sec (464 seconds)

Published: Fri Jul 15 2022