Wanna mortgage?

According to Dave Ramsey, financial self-help guru, when purchasing a home for the first time you should have at least 10% to put down, get a maximum 15 year mortgage, and have your monthly payments total no more than 25% of your net income.

Heading over to the mortgage calculators at MLS we find that buying a $450,000 home with $45,000 downpayment and a 15 year amortization period at 6% interest would result in a monthly mortage payment of over $3400. That means you’d have to be netting over $13,000 per month. My SIL’s husband makes $250k per year and nets $10,000 per month. So Dave thinks that you shouldn’t buy a $450,000 home unless you are making well over $250k a year. What planet of cheap real estate is he living on?

Think that saving up more money for a downpayment would get you a better deal? Even doubling your downpayment from 10% to 20% on that $275,000 home would only decrease your monthly mortgage payment by $230, allowing you to net about $900/month less, which means instead of having to gross $150,000 you need only make $140,000. I’m sure that is a great comfort to us all.

At the other end of the spectrum, the “affordability” calculator at MLS says that if you gross $150,000 per year, have no debt, and get a 6% interest rate on your mortgage, you can “afford” a monthly payment of up to $4000 and a total mortgage of $625,000 (they don’t show the amortization period used for this calculation but you can bet that it’s way more than 15 years). Given 10% down that’s a $700,000 home. But given that a $150k salary nets you about $8000 per month, that’s a whopping 50% of your monthly income spent on the mortgage payment alone. Talk about debt enslavement!

So Dave says if you gross $150,000 you should only buy a $275,000 home whereas MLS says if you gross $150,000 you can buy a $700,000 home. I’m hoping that the truth lies somewhere in the middle!

Categories: money matters | 4 Comments

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4 thoughts on “Wanna mortgage?

  1. carosgram

    I don’t know how much land you want with your rural aspirations or if you are restricted to certain locations by employment or family but I can tell you that you can get 10 acres and a modern house around here for $150,000. When I bought my house I paid the equivalent on one year’s salary. Of course I live in town with little land but housing is very reasonable around here. Thinking of you and wishing you the best.

  2. ruralaspirations

    We wish to remain in our current province (for both reasons you listed), and I’m not confident (brave?) enough to get too far away from a town centre. In the region we’re looking at it is hard to find a residential property for under $350,000. Acreages (approx. 5 acres) with houses on them are about $500k. We might just buy a land lot and then slowly build on that. Stay tuned! 🙂

  3. “SIL’s husband makes $250k per year” – I wanna know what’s your SIL’s DH does for a living!!

  4. Hi, Have nice day. Thanks:)

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