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Chicago526
06-19-2006, 08:32 AM
I've been re-reading Total Money Makeover and remembered that Dave recomends that your mortgage be 25% of your net take home pay.

Does he mean just the mortgage (princeple and interest) or your total house payment including property taxes and homeowners insurance?

Right now our total monthly house payment, including taxes and insurance, is 26% of our net take home, so we are right were Dave says we should be. But someday we may need to move to a more expensive area, and while we'll save money to make a nice big down payment to cancel out the effect of a larger purchase price, I want to be clear on what exactly he means by 25%.

Thanks! :wave2:

mommyceratops
06-19-2006, 08:44 AM
We just finished the 12 week finacial peace course and I am pretty sure when he means 25% he means EVERYTHING included in that.

So start selling and saving! :goodvibes

How is it going? DH and I really like Daves program.

Chicago526
06-19-2006, 09:20 AM
We just finished the 12 week finacial peace course and I am pretty sure when he means 25% he means EVERYTHING included in that.

So start selling and saving! :goodvibes

How is it going? DH and I really like Daves program.

Well, we aren't following his advice to a "T", but it's going quite well. We hope to be CC debt free in about 18 months, and after that we'll tackle DH's truck payment. Yes, dave says to sell the car and get rid of the payment but DH is upside down in the loan, the truck is worth 10,000 and we owe 15,000. We'd have to pay $5000 to get out of the loan and then spend even more money getting DH a replacement vehical, because he still needs something to drive. So, we're stuck with the truck (and least it's handy for weekend home projects...) I wish I knew DH back when he bought it so I could have talked him out of it! Oh well, at least my Saturn is paid for (and runing well...knock on wood!).

We are paying cash for everything now, and the bulk of our extra money is going towards the debt. Some of our extra money is going to nessesary home improvements that can't really wait. Another deviation from his plan is that I haven't stoped my 401k contributions, in fact I increased them. DH only has a pension through his union (and we all know those aren't worth the paper they are writen on) and I just can't turn my back on my company's very generous match. We are paying over $1000 a month towards debt paydown (over and above the minimum payments) and an extra $50 a month really won't make a big differance, so I may as well invest it and have it work for me the next 35 years!

We also aren't as "gazelle intense" as what Dave would like to see us. We didn't cancel cable or internet, for example, they are almost our sole source of entertainment. We don't buy much in the way of clothes or household items that other households have to budget for, so we feel it's a good trade off. We have cut out eating out and our weekly allowance (blow money, per Dave's term) is very, very low.

But overall I'd say we're following about 85% of his plan, and it's working for us very well! :) Good luck to you in your own journey!

mommyceratops
06-19-2006, 10:08 AM
We didn't follow to a "T" either. We were $7000 upside down in our van and I was not going to trade it in for a lesser car and eat the $7000 on a loan. Like Dave says. We looked around for about 4 months and went to KIA two weeks ago and the sold us a new van and kicked us some rebates we had and we ended up $1000 ahead!! :thumbsup2 So we are buying a new car :moped: not what Dave says either but :confused3 At least in 4 years we will own it, and we are not paying any more a month than we were to begin with. I have a van. :rolleyes1

We own DVC which is not on Dave's plan BUT it is in our debt payoff plan so we are trying at least and using CASH only no credit cards. :teacher:

Oh yea and we pay our Disney Vaction fund first then credit cards; but at least we are not charging our trip!! :rotfl2:

Good luck!!

DH and I decided to follow it but we reformed to make our budget and our needs like our Disney trip. :wave2: So we can get our of debt and eat our cake too so to say. princess:

DisneyBill
06-19-2006, 10:28 AM
When Ramsey is asked this question by callers on his show, unlike most other issues he doesn't have a pat answer. His reply usually is the percentage(s) difference made by including, or not including, T&I won't make or break the logic in his mind. He goes on to say that his percent ratio of housing to income is so much lower than the typical mortgage qualifing guidelines that 1 would be in much better shape following his guideline regardless.

Chicago526
06-19-2006, 12:01 PM
When Ramsey is asked this question by callers on his show, unlike most other issues he doesn't have a pat answer. His reply usually is the percentage(s) difference made by including, or not including, T&I won't make or break the logic in his mind. He goes on to say that his percent ratio of housing to income is so much lower than the typical mortgage qualifing guidelines that 1 would be in much better shape following his guideline regardless.

So your saying he feels that in most cases, Dave feels it doesn't really matter if you base the 25% on the P&I or the total monthly payment, since either way you're (usually) well below the national average?

Cool! At $1,300 a month (w/tax and ins), we're right at 26%. So unless we save a huge downpayment for our next home, we wouldn't be able to afford a house that's more expensive (difficult in this area). But if we figure the 25% as just the mortgage, then we have a lot more wiggle room, right now we're at 18.5% if we base it just on the P&I. Obviously we'd still have to take the total monthly payment on a new house into account with our monthly budget and other goals, of course, but this makes things look a lot better for us. My hope is to move back to the town I grew up in because the schools are so much better, but at the momement we can't afford to live there because housing is so expensive. By the time we're ready I hope the market will have cooled to the point where we can swing it. If we stay put we're looking at Catholic schools for our (future) child(ren). I'd rather have a higher mortgage than a private tuition bill.

PrincessDadx2
06-19-2006, 03:35 PM
Just to throw a twist in, Dave thinks the 25% should be on a 15 year mortgage, not 30.

I don't agree with that, but that is what he says. I always try to evaluate it vs. the equivalent rent for the same property. As long as my after tax ownership costs with maintenance are less than the rent I am coming out ahead.

DawnM
06-19-2006, 04:28 PM
I think it also depends on how long you plan to live in your house.

We have just purchased our 4th house. We buy fixers, fix them, and turn around and sell them for a profit. This house needs some minor cosmetic work and has a 950 sq. ft. unfinished basement that we will be finishing next year.

We are hoping this is our last investment house. We should have enough after this sale to purchase a home outright.

Oh, and as for the car....I understand not wanting to take a loss on it. We tired to sell our car with no takers and finally decided that since DH's commuter car is on its last leg we had best keep our other car (with the loan on it) as it would be less expensive in the long run than selling it at a loss and replacing it a year or two later.

Dawn