Wanna mortgage?

According to Dave Ramsey, financial self-help guru, when purchasing a home for the first time you should have at least 10% to put down, get a maximum 15 year mortgage, and have your monthly payments total no more than 25% of your net income.

Heading over to the mortgage calculators at MLS we find that buying a $450,000 home with $45,000 downpayment and a 15 year amortization period at 6% interest would result in a monthly mortage payment of over $3400. That means you’d have to be netting over $13,000 per month. My SIL’s husband makes $250k per year and nets $10,000 per month. So Dave thinks that you shouldn’t buy a $450,000 home unless you are making well over $250k a year. What planet of cheap real estate is he living on?

Think that saving up more money for a downpayment would get you a better deal? Even doubling your downpayment from 10% to 20% on that $275,000 home would only decrease your monthly mortgage payment by $230, allowing you to net about $900/month less, which means instead of having to gross $150,000 you need only make $140,000. I’m sure that is a great comfort to us all.

At the other end of the spectrum, the “affordability” calculator at MLS says that if you gross $150,000 per year, have no debt, and get a 6% interest rate on your mortgage, you can “afford” a monthly payment of up to $4000 and a total mortgage of $625,000 (they don’t show the amortization period used for this calculation but you can bet that it’s way more than 15 years). Given 10% down that’s a $700,000 home. But given that a $150k salary nets you about $8000 per month, that’s a whopping 50% of your monthly income spent on the mortgage payment alone. Talk about debt enslavement!

So Dave says if you gross $150,000 you should only buy a $275,000 home whereas MLS says if you gross $150,000 you can buy a $700,000 home. I’m hoping that the truth lies somewhere in the middle!


4 responses to this post.

  1. Posted by carosgram on January 6, 2008 at 10:36 am

    I don’t know how much land you want with your rural aspirations or if you are restricted to certain locations by employment or family but I can tell you that you can get 10 acres and a modern house around here for $150,000. When I bought my house I paid the equivalent on one year’s salary. Of course I live in town with little land but housing is very reasonable around here. Thinking of you and wishing you the best.


  2. Posted by ruralaspirations on January 6, 2008 at 2:19 pm

    We wish to remain in our current province (for both reasons you listed), and I’m not confident (brave?) enough to get too far away from a town centre. In the region we’re looking at it is hard to find a residential property for under $350,000. Acreages (approx. 5 acres) with houses on them are about $500k. We might just buy a land lot and then slowly build on that. Stay tuned! 🙂


  3. “SIL’s husband makes $250k per year” – I wanna know what’s your SIL’s DH does for a living!!


  4. Hi, Have nice day. Thanks:)


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