Dave Ramsey is a personal finance influencer probably best known for his “7 Baby Steps” to wealth. He’s also known for having black-and-white opinions about money and for being honest — even brash — on his podcast, “The Ramsey Show.”
I grew up reading and listening to Dave Ramsey’s advice, and I’ve covered his takes many times over my years as a personal finance reporter. But on the June 9 episode of his podcast, Ramsey surprised me.
A listener called in for advice about her mortgage, and when she revealed her sticky financial situation, he came off as understanding and non-judgmental. After listening to her circumstances, he didn’t push her to turn her world upside-down to meet his golden rules of housing costs.
Ramsey and his daughter and co-host, Rachel Cruze, instead gave this caller helpful insights and encouragement as she revealed her big concern:
Her monthly mortgage payment made up almost 50% of her income, or twice the 25% that Ramsey steadfastly recommends to his fanbase.
Sophia, a 41-year-old homeowner from Greenville, South Carolina, was worried that her mortgage payment was too high. She wanted their advice about whether she should sell the house or hold onto it. At the beginning of the call, she was clearly leaning toward selling. By the time she hung up, Ramsey and Cruz seemed to have convinced her otherwise.
“I think you’re going to be okay,” Ramsey said.
Dave Ramsey clarifies his 25% rule for housing
As I mentioned, Dave Ramsey has a strict “25% rule” regarding how much of their income people should spend on mortgage payments. This “rule” states that 25% or less of your take-home pay should go toward your mortgage payment, including the principal, interest, insurance, taxes, and HOA dues, if applicable.
Sophia’s mortgage payment ate up 50% of her take-home pay, which was quite the leap from 25%.
In 2024, Sophia moved into a new place and made a 10% down payment. Now, her monthly mortgage payment is $2,454.98. She brings in $5,200 per month, so she was concerned that her housing payments were over 47% of her income.
When Ramsey asked, Sophia clarified that the $5,200 take-home pay was after her health insurance and 401(k) contributions were taken out of her paycheck.
“That is not the number we’re talking about,” Ramsey told her. “Your take-home pay that we’re talking about is just net of taxes only. Add back the health insurance and your 401(k) contributions, that’s the percentage we would want to be lower.”
He also told Sophia to factor her $1,500 tax refund back into her income, because the refund signaled that too much money was being withheld from each paycheck.
The three of them recalculated her income and discovered that she was actually spending around 40% of her monthly take-home income on her mortgage payment, not nearly 50%.
Ramsey still wasn’t upset about this percentage, even though it was 15% higher than his “25% rule.”
“You don’t have enough house payment that I am panicked with the adjustments that we’ve just made,” he said, “but it is a little bit tight.”
A 40% housing ratio doesn’t upset Ramsey
As Ramsey and Cruz continued to ask Sophia questions, they uncovered that the mortgage is the only debt she’s carrying. She’s also saving around $1,000 per month on top of her 401(k) contributions.
Ramsey said that considering Sophia’s detail-oriented personality, he wasn’t particularly worried about her situation. If she was in financial trouble, she would know ahead of time.
“I would not keep [the house] if it’s bothering you — but I don’t hear it bothering you,” he told Sophia. “The only thing you were concerned about was that ‘The Ramsey Show’ said your ratios were off. They are off, but they’re not waaaaay off like we thought when we first started the call. You’re going to be fine because you’re such a planner.”
More on mortgages and the housing market:
- Americans face decision after mortgage rate news
- Mortgage rate bets shift after surprising jobs report
- Americans meet unexpected challenge with mortgage news
Ramsey and Cruz said that if Sophia’s housing payment does start to bother her, she could consider downsizing. Then, moving into a smaller house with a lower monthly payment would relieve stress and allow her to live more freely.
“Give yourself a little bit of time,” Cruze said. “But I would say if you do look up, your house is not worth stressing and losing sleep over.”
Sophia had started the call thinking that selling her house sooner rather than later might be best. But they told her that, unless she really wants to sell, it’s probably a thought for down the road.
Dave Ramsey’s key takeaways for homeowners
- Pay close attention to your finances. Sophia had a detail-oriented personality, but not every homeowner does. “What happens when you can be strained by the house — we call it house poor — is it sneaks up on people,” Ramsey said. Monitor your money so problems don’t catch you by surprise.
- Build up your emergency fund. Sophia kept $7,000 in an emergency fund, and she was able to save $1,000 monthly. Ramsey and Cruz said the entire $1,000 should be going into an emergency fund, especially since she has an eye condition that could cause her to lose sight later. This way, if unexpected expenses pop up, her housing payment doesn’t become a burden.
- Look for more career options. In Sophia’s case, they advised looking into other careers for two reasons: She may need a job that accommodates lost eyesight, and her current job had limited earning potential. If your monthly mortgage payment is high, earning more money by switching to a higher-paying job or even a different career is a good way to comfortably afford your house.
- Consider downsizing. If your monthly mortgage payment is eating up a huge percentage of your take-home pay and is a major stressor, it might be time to downsize. Just be prepared for the fees and commissions that come with selling a house.
Source: “The Ramsey Show”
