7 Problems With Dave Ramsey's 25% Home Buying Rule (And 6 Undeniable Benefits)

Dave Ramsey, a prominent money expert best known for his advice on how to become debt-free, swears by his famous 25% rule for home buyers. Under this rule, Ramsey says you can only spend up to 25% of your monthly take-home pay on monthly mortgage payments.

For example, if you take home $5,000 after taxes, the 25% rule dictates that you can only spend up to $1,250 per month on a mortgage payment. And while this rule seems like a wonderful idea in theory, it may prove to be unrealistic for many. 

Keep reading as we explore the pros and cons of Ramsey’s 25% rule.

The average take-home pay, which includes your after-tax income, is $4,864 per month for American households, according to ZipRecruiter. If you’re following the 25% rule, this means your mortgage payment shouldn’t be more than $1,216 per month.

If you follow Ramsey’s recommended 20% down payment of $23,179, this means your home-buying budget would be $115,897.

If you buy more house than you can truly afford to keep up with, it can pinch the rest of your budget. When you stick to the 25% rule, you’ll avoid becoming house-poor, a phrase used to describe those who use almost all of their earnings to pay their mortgage.

Although it’s possible to find a home that meets the 25% rule, it’s not always an option for average Americans. For example, if you take home an average of $4,864 per month and have a house-buying budget of under $120,000, you’ll still fall far short of the median house price of $356,585 in the U.S.

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Homeownership is a big goal for many, but often it’s not the only financial goal.

For example, you might plan to retire one day or take a dream vacation. With the 25% Rule, you can use the extra room in your budget to invest for the future and spend on what matters to you now without an oversized mortgage payment holding you back.

You may need to sacrifice size, location, and even some pretty essential features (like multiple bathrooms) to find a home that works within Ramsey’s guidelines. That could mean dramatically limiting the pool of houses you have to choose from, which could leave you with buyer's remorse.

If you don’t see homeownership happening with the 25% rule, it might give you an incentive to boost your income. As your income grows, your ability to find a house that meets the 25% rule requirements will also increase.

Building up a large down payment is one option if you want to stick to the 25% rule. Making a larger down payment will lower your mortgage payment. And while having that big chunk of cash ready to go up front can be a pro, the amount of time it can take you to save up that much money can be a major downside for those hoping to make a move within the next year or two.

Homeownership is a significant expense. Although many jump into the commitment, waiting until your numbers can truly support buying a home will likely ease your financial stress.

If finding a home within the 25% rule parameters is out of reach where you currently live, you might need to expand your search to other areas. Although homeownership might be a major goal, moving to a new region might not be worth it.

When you buy a house, you might be surprised by all of the expenses that come along with it.

Some include obvious repairs and upgrades, while others involve buying new furniture to fill the space and tools to maintain the property. With less than 25% of your take-home pay going toward the mortgage, you can cover these expenses as they arrive.

In addition to high housing prices, shoppers also face high mortgage rates. The combination of unaffordability makes it difficult for most buyers to find a home that meets the 25% rule, especially as rates continue to fluctuate.

If you aren’t sure what you can afford, the 25% rule gives you a solid guideline. Even if you can’t hit the mark right now, it gives you something more concrete to work towards.

Ramsey advocates for paying off your mortgage early, after your other consumer debt. If you lock in a house that suits your needs, you can work to pay it off early or potentially refinance your home when mortgage rates drop.

Your housing costs will drop significantly once you pay off the mortgage balance. This is an especially important point because Ramsey suggests getting a 15-year mortgage and paying it off early. If your mortgage payment ends up being above the 25% mark for several years, it might be worth it after you eliminate your mortgage payment.

Dave Ramsey’s 25% rule for homeownership can be an unrealistic one for many. In theory, finding a house that suits this framework will lead to lower financial stress, but in practice, it may force you to reconsider which home you plan to purchase or create a creative plan for boosting your income.

But, for those who don’t mind putting in the extra time and growing their income to match the cost of their dream home, it could be a smart way to stay financially secure, so it’s worth considering before making the plunge into homeownership.