Real Estate the Ramsey Way - Is Homeownership Still Possible for Young People?

Episode Date: March 3, 2025

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Dave Ramsey here and welcome to another episode of Real Estate, the Ramsey Way, where you'll learn how to make smart home decisions, avoid costly mistakes, and navigate homeownership with confidence. Today's question comes from Travis in Vermont. He says I'm 23 and saving for a home down payment, which should only take 12 to 18 months. However, I've heard that you recommend not having a mortgage of more than 25% of your take home pay. even if I were to save enough for a 20% down payment, I wouldn't be able to get a mortgage anywhere near that. I earn 70,000 per year, which is above average for coming straight out of college. There are no starter homes in this area for less than $150,000. Do you think young people will ever have a chance at purchasing a house

if we stick to your 25% guideline? All right. Oh, that's a good question. Let's talk about it from a couple of angles. Number one, I love that you want to buy a house. I think that's great. I think the dream of real estate is the American dream, right? To own something that's yours outright.

It's great. What you first said was you could save for a down payment in 12 to 18 months, which lets me know whatever you had in your mind, you thought, this number will get me in the door. But the door that it's going to get you in is a dangerous door for you. The reason that we say 25% of your take home pays because we want you to be able to live. Like, we want you to be able to breathe out here because. That's right. That's right.

Yeah, at some point, you have to think about it like this. At some point of the 100% pie of income that you have, at some point you're going to want to invest 15%. So there's that. At some point, you're going to want to give 10%. So there's that. That's already at 25. At some point, you have a mortgage.

Let's say it's more than 25%. Let's say it's at 40%. Well, suddenly you don't have much to live off of, right? You've really cut that wedge really, really small for you. And we find people all the time who call in and say, oh my gosh. I mean, it happened the other day, Ken, folks calling that 50 percent because they'll give you a mortgage up to 50 percent. Oh my goodness. And when that happens, these people can't breathe. No. Like, they can't pay for a pot to piss in. Like, they don't have anything.

One of my all-time favorite phrases, by the way. You dusted that one off. That's like an old-school It came from the depths. It did. That's like an old-school phrase. I think I've probably heard my dad say it. But- Oh, I promise you. Anyway, you know, that's the point. It's not, it has nothing to do, it has nothing to do with being a Ramseyism, right? That's right. It's about you. We want you to be able to live.

It's about margin and emotion attached to that margin. And so that's kind of what I want you to leave here with. It's not about us. It's about you being able to enjoy your home and have the money to do the things that you need to be able to do. So that's thing one. Now, let's answer the question of, do you think single people will ever have a chance at purchasing a house if we stick to your 25%? saying guidelines. The answer is yes, but, comma, and you'll have to change your expectations on possibly the piece of real estate and the timeline that it will take to get you there.

That's right. And the zip code. And the zip code. All these things. And what you grew up in doesn't mean that that's what you're supposed to start in. Facts. And I think that's the biggest thing. Yeah. It's like, well, you grew up in a four bedroom, three car garage and you think that that's what you're supposed to start with. And I'm like, at 23? Wow. I think a lot of of people do think of things. You're right. And it's like, wait a second. I mean, the first house Dacie and I started with, it was, it's like a matchbox compared to what we live in now. I do know. And we thought it was massive and scared to death of it, by the way. It's $198,000. Wow. And I thought, and I thought, and by the way, I did it by the book, the down payment,

the way Ramsey teaches it. But I thought I had mortgaged my life away because of the sheer price of the home. Yes. $198,000 back then. That was. like, I thought I was going to die. And that's so important to note, Ken, so important, despite what your monthly payment for the mortgage might be, you still, that first home, you feel the weight of whatever the entire amount is. Even though we put a nice down payment on, it was over 20, but it still felt like, what have I done? Yeah. So there's a responsibility there, which, by the way, it makes me think, I want to just add one thing. I thought your answers were great. This is why we created, what I think is one of the best resources we've ever created at Ramsey. And by

the way, it's all free. It's called Ramsey's Real Estate Homebase. So anybody watching and listening right now, this is free. And it's absolutely chock full of, it's a podcast on there. We've got a book on there. We've got a video series, how-to articles, start to finish guides on buying or selling anything real estate related. If you're kind of going, what do I do? Yes. And you trust us. Go to ramsysolutions.com slash real estate. Let me say that again. Ramsey Solutions.com slash real estate. If you couldn't write it down, can't remember it, go to the show notes for today. It's there. Very important that you understand what all is involved here. So, really good question. And Ken, let me drive this. Let me drive this point home one more way.

Drive it down the lane. There's always, there's always a new listener, someone who doesn't know our backgrounds, right? So my husband and I, I loved this question because right now, the real estate, it's gotten more and more expensive. It started to cool out in some areas. But the truth is, it is very expensive. And with other things being expensive, inflation and things like that, it does make it feel harder to be able to accomplish this dream. That is the truth. Well, the numbers have gone up. You're right about that. It is a higher level. Yeah. And so I like to remind people when my husband and I were getting out of debt, of course, we couldn't buy a house during that time because we say you should really pay off your debt before you become a first-time

homeowner. And so Sam and I rented Ken for 10 years. And during the course of that 10 years, we paid off $460,000 of debt. And then we saved up and were able to do, you know, I also had a bunch of people living with you, too, I feel like. You say what? Didn't you have a bunch of people living with you too? Not a bunch of folks. We had roommates at one point. We did.

That's what I'm saying. I'm not knocking that. We were married and we had another married couple that lived with us for a year. I thought that was extreme. 10 out of 10 would not recommend, Ken. But you did it. We did it. But the point is...

I said a bunch of people. I'm sorry. It kind of sounded like we were just on the blog. We just had folks coming through. Lipping in a shoe. No, just reframing like, a time frame. If it takes 10 years, so be it. You'll be a homeowner. I can tell you you will. And here's the key. Actually, I'm really glad you brought that up because I think some people right now

are still going, 10 years before you throw shade it, my friend, I want to bring this back to you because that 10 years of rent, I'm sitting here with you today and I'm going to take a guess that you don't feel like you pissed that money away. Not at all. So what did the 10 years of rent, which some people right now are on TikTok Instagram going, what? Yeah. Yeah. How did that 10 years of renting give you freedom to get to where you are today? Break it down. Well, A, I don't regret it at all. Like, here in my life, I'm 41 years old.

I don't go, oh, man, if only I had bought my house when I was 23. Like, there's no part of me that thinks back and regret at all. Why? Because it was worth it to do things right. We took seven and a half years, paid off all the debt. Then we took, we lollygagged a couple years because we were tired. It took some more time to save up. That's the truth.

Well, you were paying off half a million dollars. Right. You deserve a water break. It took some time to save up. And then when we finally bought our house, I was pregnant. I just had my first son and I was 36 years old. And it was great. And now here you are. Homeowner. Homeowner. I'm on my second house. People think that that's wasting money. And in your case, it was actually the freedom and margin you needed to get out of debt. That's right. Because it was cheaper. It was far cheaper. It was far cheaper for us to rent. We had a season of roommates. And it freed up money. And like we said before, the last thing I needed was. more stress of then feeling like, okay, now I've also got this mortgage that I have to, you know, be accountable for. So, Ken.

Craziest thing that happened that you're willing to share when you had another married couple, roommates, or most awkward? I think one time we came home and they had bought a home alarm, an alarm for the house. And so Sam and I came home from a trip. We had been working. And when we opened up the door, whew! They didn't tell you. That has to be really alarming.

Yeah, that alarmed me. I'll bet, no pun intended. Wow. Yeah, it was alarmed. Let's go to Dane in Denver, Colorado. Dane, what's up? Hey, how's it going? Going good.

I'm glad I got you too. I absolutely love the show, so thank you very much. All right, so I guess I'll just give you my background. I have a question about should I pursue building a second home? Okay. Up in the mountains here in Colorado. Okay. We got about two minutes, so get into it.

Okay, all right, yeah. I have $940,000 in my savings in my retirement. I have absolutely no debt. I own my current home, all my car is everything. And I currently put 32% into savings right now. I wanted to have, if I could knock that down to y'all recommended 15%, and then take those, that extra money that I'm putting in extra in the savings to pursue the home.

The home's going to be about $190,000. I've already cash flowed the property, the septic, the well, all that kind of stuff. Cool. Now I'm just got to get the actual home. Yeah, how long would it take? If you went down to 15%, how long would it take to save up the 190 needed? I'm estimating like seven years. Whoa.

So. No. It is. How old are you? I'm 46. Okay. So we're not going to touch retirement. Can you promise me that?

We're going to use savings outside of that. So the question becomes, how do we make more in order to make this dream happen faster? Man, I do everything I possibly can. I have a good salary and make $150. I have two side jobs. I'm actually starting up a little tutoring service to help people in my career.

I have books that I've written. I gain revenue on. So, I mean, I don't know what else I can do. Is this like a vacation house or will this be a rental? What will this be for you? It will be a vacation home for me and my family. It's about an hour and a half into the mountains. It's my dream since I've been five years old. My biggest, and I feel urgency here, I had two little kids and I really want to get it done sooner than later so that they get to enjoy it. And that's the whole point. I could wait seven years. My guts, you know, telling me to do it now, but my brain is. telling me, you know, be smart, cash flow at all, but I'll have, you know, an 18-year-old at that

point, and it's like, will it be worth it? Can you just go rent a place until it's done? And, hey, once a year, you guys go a few times a year, go rent-to-place up around there? We do travel a lot. That's, this is our, you know, the only thing that we actually splurge on is our traveling adventures. And, yeah, I mean, we do try to experience as much as we can Yeah, I mean, you're right. You're 100% right. I do not need this. I would just split the difference and go, we're going to rent a place, we're going to move at the speed of cash. This is a toy. We're not going to go into debt for it. And truthfully, you got a 15-year-old a few years from now. They're going to be like, Dad, I don't want to go to the – I want to hang out with my friends this weekend. That's what's going to happen. So I don't want you to put this whole dream on the kids. Just say it's for you, and maybe the family gets to enjoy it, too. Not bad. Not bad. I don't know. One man's take. That's one man's take. It's a tough one, but I got to go with two.

George on this one.