slk2042:

Does Dave Ramsey say that a mortgage is an acceptable debt or not? I can't remember. Either way, we've gotta pay to live somewhere, either rent or a mortgage. May as well use that monthly payment to get equity, IMHO.

I know there are some financial advisors that say we should save up to pay cash for a house. I just don't see that being a practical goal. My family would never get there!

It depends on how lucky do you feel. Will the dollar value of the house go up or down during the period you own it? What is the difference in cost for ownership vs. renting, and what would you do with the difference? A strong financial argument can be made for never owning a house if one considers the interest payments over a 30-year loan, and understanding that principal+interest+taxes+insurance is generally only 60% of the cost of owning a home. The rest is for maintenance and improvements.

But there is also the value of the satisfaction of owning your own home and knowing you can do whatever you want with it, not the case with a rental. You have to place your own dollar value on that. You also have to place your own value on knowing that the price will stay the same (assuming a fixed-rate mortgage) vs. having the landlord raising the rent. But if the furnace dies or the basement leaks that's your problem, not someone else's.

There are a large number of people who choose not to own homes for those and other reasons and prefer apartment living so they don't have to deal with those maintenance issues. Or if they move frequently the buying/selling costs outweigh any possible gains in house appreciation now that the boom years are clearly over.

So, as with many other things in life, you "pays your money and takes your chances". There is no clear cut answer for everyone.

I like Dave Ramsey - I periodically watch his radio show ( i know that's an oxymoron) on CNBC I think, and he is kind and loving toward those who call in, and praises all the little efforts his listeners make, whether it's negotiating down the price of a used car, or learning to do home repairs or whatever it is they do to make it all work. He seems to have a lot of heart. His books are not as helpful to me because they include a lot of success stories that go like "my wife and i fought over money all the time, we were filing for our third bankruptcy then I listened to Dave Ramsey on the radio. That day I started delivering pizzas after my day job and within 36 months we were living debt free!" Those kinds of stories make me want to scream!!! I want to ask "What happened in between, where else did you cut back, were you happy working 'round the clock, and how much of your second and third incomes did the IRS take?" Still, this was the first contact I had with the idea that living debt free was possible nowadays with the high cost of everything. If Dave doesn't work for you, keep looking. I love Suze Orman and Gail too. I need straight shooters when it comes to finances as I tend to get confused easily and am only too willing to listen to someone (like dh or my daughters) who say, "c'mon, you deserve it. go ahead....buy it." hugs.

Walt34:

But there is also the value of the satisfaction of owning your own home and knowing you can do whatever you want with it, not the case with a rental. You have to place your own dollar value on that.

Not to mention, years ago a buying a home was an investment that lasted most of a lifetime unless you decided to downsize.

Walt34:

I know there are some financial advisors that say we should save up to pay cash for a house. I just don't see that being a practical goal. My family would never get there!

The recent housing market people were buying and flipping for a quick cash or borrowing against the equity of their home. The only people who made money were lenders and real estate folks and it was in their best interest to keep driving the price of homes higher. So yes, in that regard, paying cash for a home now is almost impossible.

Walt34:

It depends on how lucky do you feel. Will the dollar value of the house go up or down during the period you own it? What is the difference in cost for ownership vs. renting, and what would you do with the difference? A strong financial argument can be made for never owning a house if one considers the interest payments over a 30-year loan, and understanding that principal+interest+taxes+insurance is generally only 60% of the cost of owning a home. The rest is for maintenance and improvements.

But there is also the value of the satisfaction of owning your own home and knowing you can do whatever you want with it, not the case with a rental. You have to place your own dollar value on that. You also have to place your own value on knowing that the price will stay the same (assuming a fixed-rate mortgage) vs. having the landlord raising the rent. But if the furnace dies or the basement leaks that's your problem, not someone else's.

All of that...  and then, owning my own home is part of my retirement plan.  It was always a dream of mine to own my own home, and if I can continue at the rate I'm going, it will be paid off in full before I retire - which will have a significant positive effect on the amount of retirement income I need; maintenance will still exist, but I will not have a payment or housing.  Yes, I will have paid a significant amount of interest - but my house payment, while greater than rental costs, will vanish entirely when the house is paid off, I get a tax deduction for the interest, which offsets some of the costs... and as you said, I have the satisfaction of owning my own home.

 We are Dave Ramsey TMMO-ers and retired FPU faciliators. 

The TMMO book is a Readers Digest condesnded version.

Financial Peace University Revisisted is the book with all the nitty gritty details.

The advice is basic common sense advice, aimed at a general market--ALL can benefit from his advice--even when it doesn't apply to your specific situation.

That is why it is called "personal" finance--each person's situation is a bit different but OVERALL the advice applies. 

If your income is $26k or less yearly, he advises a $500 Baby Emergency Fund to begin with.  His "one month" guideline is a way of making you realize the urgency of getting money saved for those emergencies.  He is hoping to light a fire under folks and help them slash the budget, and sell off "stuff" to get that money saved.  That is what he calls a gazelle focused intensity.  

Dave has no problem with home ownership--as long as you can truly afford the mortgage.  He would like to see everybody debt free before a mortage is taken on.  His ideal: 20% cash down payment on a 15 year conventional fixed rate mortgage with a payment that includes taxes and insurance that does not exceed 25% of your NET monthly pay.  Of course, people make adjustments to that all the time.  The reason he says that is the best way to purchase a home is that it saves you thousands in interest paid out AND it frees up enough of your income so you can fully fund your retirement and children's college education while paying cash for repairs, maintenance, etc. 

There is plenty of great tried and true wisdom in his teachings.  Even if you are living frugally, you can educate yourself on the best types of insurances to buy, the best way to invest earnings for retirement, etc.  

You can go to the Dave Ramsey website and listen to his radio program 24/7 for free.  www.daveramsey.com

You can also sign up for a 7 day FREE trial at his paid subscription site  www.mytotalmoneymakeover.com

You will see me on the paid subscription site. 

 

 

 

 

 

karenteacher:

but my house payment, while greater than rental costs

A growing trend in my area is to see rent equal and sometimes be greater than the cost of the mortgage, insurance and tax combination. Many rentals are homes that owners signed on when housing was at a high peak so the notes are large and rent has to cover that cost.

 

 In my area it looks like a two bedroom apartment costs more than my two story four bedroom house.  I don't know how people around here can afford to rent, it would be difficult for us.

I have a love/hate relationship with Dave Ramsey. When his system works, its fantastic and when it doesn't it stinks.

Brandy:

karenteacher:

but my house payment, while greater than rental costs

A growing trend in my area is to see rent equal and sometimes be greater than the cost of the mortgage, insurance and tax combination. Many rentals are homes that owners signed on when housing was at a high peak so the notes are large and rent has to cover that cost.

 

Honestly, it's been so long since I rented (6 years in my house, 6 years in a condo before that, building equity for a down payment on a house) I'm not really sure how my house payment compares to rentals for similar homes in my area.  I do know that I was able to buy my house when it was a buyer's market and interest rates were low (my mortgage is a fixed rate 5.5%), so I bought it for less than it appraised for, and even in the current market it's continued to appreciate.  I also know that many people I know are not able to qualify for a mortgage in today's market because of poor credit and high debt - so they MUST rent.  One of my coworkers and her husband sold their house and returned to renting because the costs were much lower (he's in construction, and his work has been sporadic) - they intend to buy again, but in the meantime, renting is cheaper, or at least it was when they moved several years ago. And I have some friends who just don't want to deal with home ownership.

I like Dave Ramsey . . . to a point.  I appreciate that his message is to make people feel that they have to do it NOW and to see where there are holes in the budget and such.  But sometimes there really isn't.

Like others, I have broken it down to apply as it works for me.  I do that with any expert advice really as it's not one size fits all.  What I like from him is the idea to keep cash on hand so you aren't scrambling when an emergency happens.  For us, $1000 isn't enough-we have a rental property and live in a high cost of living area.  A month without income or a month without a tenant could really hurt us.  So I am higher-I like to have 3 months of rental property payments in the bank (I don't right now, building it back up).  The other thing that I really like in his book is the section on car loans.  It totally changed my thinking about buying a car.  We have a 0% interest auto loan right now on DH's car but hope to never take another auto loan again after that one is done (we're more than halfway through it, doesn't make sense to sell it at this point).  In the future, we will do everything possible to buy a car with cash (though that may or may not be possible depending on how things go.)  Anyway, I thought that was a great message of his.

I think any of the expert books can be frustrating to read and apply.  On paper, it seems so easy . . . follow these steps, reach this goal.  In practice, it just doesn't seem to go that way.  And that can be discouraging.