Dave Ramsey has upset his fanbase with financial advice that many are calling out of touch in the current economic climate.
Last month, we covered Ramsey’s latest advice on mortgages, where he advised listeners on his popular show to never take out a mortgage of more than 15 years, as this will cost you thousands of dollars more in the long run.
Don’t miss
- I’m 49 years old and have nothing saved for retirement — what should I do? Don’t panic. Here are 5 of the easiest ways you can catch up (and fast)
- Gain potential quarterly income through this $1B private real estate fund — even if you’re not a millionaire. Here’s how to get started with as little as $10
- Robert Kiyosaki warns of a ‘Greater Depression’ coming to the US — with millions of Americans going poor. But he says these 2 ‘easy-money’ assets will bring in ‘great wealth’. How to get in now
However, users on X — as well as readers of a right-wing website called Not The Bee — are doing the math and showing just how difficult it is to get in on the housing market at all, let alone to be able to afford a home with a shorter mortgage term.
The @FinancialPhysics X account posted a breakdown of how much homebuyers in the U.S. would have to make per year after taxes to afford the average home price in America — a whopping $190,000.
The video further calculated the cost of a house in Mississippi, where the average home prices are the lowest in the country at $180,000, according to the figures in the video. Assuming you spend no more than a quarter of your take home pay on your mortgage, you’d still need to earn $95,000 per year to afford a 15-year mortgage in Mississippi.
The caustic comments posted on X and elsewhere about Ramsey’s advice were described as “an absolute bloodbath.” Below, we’ll take a closer look at the financial realities of buying a home in America today, and how you can make the math work for you.
Doing the math on American mortgages
Checking up on the figures in the video, the math on mortgages more or less works out. According to Zillow, the current average home price in the U.S. is $367,711. Assuming a mortgage rate of 7.04% — the current national average — and a standard 20% down payment, your monthly mortgage payment would be $2,651 on a 15-year loan, according to Bankrate’s mortgage calculator. A down payment that’s smaller than 20%, or $73,542, would net out to monthly payments around $3000 per month.
In terms of income, the figures for what makes a high-income individual vary widely by state, but across the board, an income of $335,891 per year puts you in the top 5% in this country. The @FinancialPhysics video also correctly reports the real median household income in the U.S. — $80,610 as of 2023, according to the Federal Reserve Bank of St. Louis — which is well below the income levels for 15-year mortgages that we detailed above.
In terms of the cheapest states to buy a house, West Virginia tops the list from Rocket Homes, with a median selling price of $208,968 in 2024.
So while the video from @FinancialPhysics may not be perfectly accurate, it paints a fairly clear picture of the state of home buying in the U.S. today — a place where old-fashioned advice on finances may no longer be relevant.
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Ramsey’s take on mortgages
Ramsey warns his followers who want to get ahead with their finances that opting for a 30-year mortgage can see you flushing money down the drain. The longer your mortgage term, the more you pay in interest, which means it takes longer to pay down the principal of your loan.
While Ramsey’s advice is perfectly sensible — a shorter loan means less spent in interest — it’s just not practical for many potential homebuyers who are already struggling with inflation and depressed wages.
With the median price of a home having increased 220% in the last thirty years — from $130,000 in 1995 to $416,900 today — it’s no surprise that Ramsey fans feel gaslit by his advice and are making jokes about his baby boomer mentality.
The social media uproar
With @FinancialPhysics captioning their video with the phrase “Boomerism linked to dementia” — and others on X leaving comments ranging from “Yeah, I’ve just accepted I’m never owning a home” to “I was happier in my blissful ignorance” — commenters had plenty to say about the realities of affording a mortgage in the U.S. today.
The person behind the @FinancialPhysics account further stoked the flames with comments that the new reality of homeownership has been destructive to birth rates and overall quality of life, and that many of America’s most affordable homes have been bought up by investors specifically to “destroy American birth rates.”
However, some commenters came out in support of Ramsey, pointing out that first-time homebuyers are probably not aiming for the median-value homes in the market.
“I feel that this data is being misrepresented by using average house prices rather than median house prices,” said one. “Came here to point this out and add that a typical first-time home buyer should not be buying a house that is anywhere near the average or median price,” said another.
The verdict on 15-year mortgages
According to Investopedia, a 15-year mortgage is a major advantage to those who can afford it, as it lowers the overall cost of the loan. But buyers who cannot comfortably afford the higher monthly payments risk defaulting on their loan.
While the total interest you’d pay for a 15-year mortgage will likely be half of what you’d pay for a 30-year mortgage — since you’re borrowing the money for half as long — it’s critical to have a 360 degree view of the true cost of a 15-year mortgage. Not only do you have a higher monthly bill, but you should also consider your insurance, maintenance fund and any additional loan or homeownership fees as part of the true cost of your mortgage.
However, a 15-year mortgage has the benefit of lower fees for the loan. Government sponsored lenders such as Fannie Mae often charge loan-level price adjustments, and according to Investopedia, these fees often apply only to 30-year mortgages. It’s also worth noting that these fees are usually for those with lower credit scores, or those who make a small down payment.
Finally, future homeowners considering a 15-year mortgage should consider their potential earning capacity in the future. While you can save substantially with a shorter loan term, the higher monthly payment may prevent borrowers from building up savings for retirement or putting money away for a child’s college tuition.
When considering the true cost of your mortgage, you should also calculate the potential value of investments in your 401(k), which are compounded by your employer contribution. You can also consider how much any potential investments in stocks and bonds would appreciate over the 15-year term.
No matter how you choose to finance your home purchase, it can be well worth your time to speak to a financial advisor who can help you map out these future scenarios and make the most informed decision possible about your mortgage.
What to read next
- JPMorgan sees gold soaring to $6,000/ounce — use this 1 simple IRA trick to lock in those potential shiny gains (before it’s too late)
- This is how American car dealers use the ‘4-square method’ to make big profits off you — and how you can ensure you pay a fair price for all your vehicle costs
- Here are 5 ‘must have’ items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you?
Like what you read? Join 200,000+ readers and get the best of Moneywise straight to your inbox every week. Subscribe for free.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
