Dave Ramsey recommends your total monthly mortgage payment (principal, interest, taxes, insurance, HOA) should not exceed 25% of your monthly take-home pay, and ideally you should use a 15-year fixed-rate conventional loan, even if it means buying a smaller home to fit the budget and become debt-free faster, says Ramsey Solutions. This strategy prevents you from becoming "house poor" and frees up income for other financial goals like retirement, according to Ramsey Solutions https://www.ramseysolutions.com/real-estate/home-buying and Yahoo Finance.
We recommend keeping your mortgage payment to 25% or less of your monthly take-home pay.
The Ramsey 25% rule is a personal finance guideline from Dave Ramsey, stating that your total monthly housing costs (mortgage principal, interest, taxes, insurance, HOA, PMI) should not exceed 25% of your monthly take-home pay, preventing you from becoming "house poor" and allowing for savings, investing, and financial freedom. It's a guideline for building a strong financial foundation, not a strict rule, though some find it difficult in high-cost areas.
To afford a $700,000 house, you generally need an annual income between $180,000 to $235,000, depending on interest rates, down payment, and existing debts, with lenders often using the 28/36 rule (housing costs under 28% of gross income, total debt under 36%) to assess affordability. A 20% down payment ($140,000) is common, reducing your loan, but taxes, insurance, and other expenses add to the total monthly cost.
And to go one step further, we recommend dividing your mutual fund investments equally between four types of funds: growth and income, growth, aggressive growth, and international.
Suze Orman strongly advocates paying off your mortgage by retirement for financial freedom and peace of mind, but her advice on how varies by situation, often prioritizing a solid emergency fund and retirement savings first, especially if interest rates are low. While she pushes for paying down debt aggressively (even reducing retirement savings beyond the 401(k) match), she cautions against draining savings for low-interest mortgages if it leaves you vulnerable to job loss or emergencies, suggesting you should have a strong safety net before using savings to pay it off.
When you make an extra payment or a payment that's larger than the required payment, you can designate that the extra funds be applied to principal. Because interest is calculated against the principal balance, paying down the principal in less time on your mortgage reduces the interest you'll pay.
A 15-year fixed-rate conventional mortgage is the only kind of loan we ever recommend at Ramsey. It keeps you on track to pay off your house fast and has the lowest total cost.
Yes, Dave Ramsey strongly advocates paying off your mortgage, calling it "Baby Step 6," because a debt-free house provides immense financial security, freedom, and a solid foundation for wealth, even arguing for it over investing at a low interest rate due to risk reduction and lifestyle benefits, though he stresses completing other steps like investing 15% first. He sees a paid-off home as a huge advantage for retirement, reducing stress and enabling career changes, and many millionaires follow this path.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
A $200,000 mortgage on a 30-year term has principal & interest payments ranging roughly from $1,199 (at 6% interest) to $1,503 (at 8.25% interest), but remember to add property taxes, insurance (PITI), and potentially Private Mortgage Insurance (PMI) for your full monthly cost, with a 7% rate landing around $1,330-$1,331 P&I. The final payment depends heavily on your interest rate, credit score, and extra costs like taxes and insurance.
Recommended 401(k) balances often use salary multiples, like having 1x your salary by 30, 3x by 40, 6x by 50, and 10x by retirement (age 67), though averages vary significantly by age group, with younger savers having less and older savers (55-64) often holding over $250k on average, but still needing more for a comfortable retirement. Key benchmarks suggest aiming for 10-15% total savings (including employer match) and increasing contributions as you earn more, using catch-up contributions after 50.
It is very possible. You plan to retire at 60 and place your life expectancy at 90, so you'll need enough income for 30 years. With $1 million, assuming your money doesn't increase or decrease too dramatically in value during those 30 years, you'll be guaranteed a minimum of $62,400 annually or $5,200 monthly.
Always give 10% of your income, even when money's tight—generosity shifts your mindset and reminds you what matters. Save $1,000 right away, build up 3–6 months of expenses in an emergency fund—and once you're debt-free, start investing 15% of your income for retirement.
That's why we recommend investing 25% of your retirement portfolio in growth and income mutual funds, which usually contain a blend of growth and value stocks to provide a stable foundation for your portfolio.
Most mortgages require a score of 620 or higher, but you still have options if you fall short.