Real Estate the Ramsey Way - My Mortgage Is 75% Of My Take Home Pay

Episode Date: April 28, 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. John is in San Francisco. Hi, John, how are you? Hey, I'm doing well. Thanks so much for taking my call. Sure, what's up?

Yeah, and look, I've just been listening for the last few weeks. Just a recent listener here, and I really appreciate all the advice you've been giving. I'm trying to balance a couple things. So I have sort of two questions. One is related to a really expensive mortgage I have. I bought a house a few years ago, and I discovered soon enough that it was a bit of a lemon. Since then, I've been sort of spending all of my time repairing this house

and trying to get it up to market value in hopes to, oh, I don't know, rent it or sell it or do something with it that could be profitable. And the second thing is that, you know, a couple years ago, I also met a lovely lady and she's just about last year moved in with me and spent a bit of a struggle trying to have enough time for the relationship, manage the finances as I sort of continue to progress with this very expensive frigatech. How much is your mortgage payment?

It's $5,300 a month. And what is your take-home pacer? My take-home is about $7,700 a month. Your mortgage payment is $5,000, and your take-home is $7,000. I don't know how you eat. That's about right. How do you eat? It's been tricky.

Are you running up credit card debt? I don't have any consumer debt. Is there money somewhere else coming in or going out? How in the world? That's an impossible budget. It's pretty tight, yeah. I've had to do a lot of the house repairs myself. I keep things pretty... You're cutting in and out. Talk directly into your phone.

What did you say? Oh, I have to keep a pretty tight budget. That's right. No, you don't have a budget. This is impossible. I've done budgets for 35 years. Your mortgage is 75% of your take-on pay. I don't... I mean, that's not sustainable. I'm shocked you've done that for more than 12 months and not caved in. I agree with you. You need to sell this house yesterday.

Do you have a lot of savings, John? Are you pulling from savings at all? Yeah, yeah. So I have about 30 in emergency and about 80 in stocks. And how much are you burning through each month of your savings? I would say, you know, maybe 1,000, maybe 1,500. Yeah. Okay.

And now we got it where you can eat. I understand how. Because, I mean, what you were telling me just wasn't. So basically, you're burning up your savings because you bought a house you can't afford. Sell it. Yep. Yep. Yeah.

Okay. Yeah. So that's really it is, should I jump ship? Yes. That's it. It's killing you. It's eating you alive. There's nothing in this homeownership package that is fun.

Everything you've described to me screams. anxiety. But, John, you knew this, right? Like, well, it's, it's in a high value neighborhood. It's,

I guess. It's a high in San Francisco. Higher than your income. Not to see, see the stars and, you know, the grass is always greener on the other side,

so to speak. But, yeah. The easier option is always greener over the septic tank. Yeah, exactly. Well, um,

sell it, John. I think it's going to relieve a lot of stress. John, I think your relationship will thrive, your finances will thrive, a lot will thrive when you're not stressed. I want you-stress to the max about this. I mean, that's hard. Here's the thing. Not only is the arithmetic absolutely ridiculous in this because you're burning savings. Thank you for saying

arithmetic. You're saying, you're saying the mathematics of this. You're saying it's, you know, you're burning through your savings. So that's principle number one. But what I want you to breathe in also is what this is costing you, the stress level you're carrying around. all the time. When you get rid of this house, you're going to feel like you set down 300 pounds that was on your back. And you've kind of gotten accustomed to carrying around 300 pounds, but when you set it down, you're going to go, I can breathe again. I didn't realize you could breathe like this. My lungs haven't worked like this since I bought this house. I mean, you're physically going to feel the release when you get rid of this burden. But you've,

intellectually and wields your way through this, you're like a bulldog that got a hold of something and won't let go. But once you let go, you're like, oh, I can let go and I'm free and I can breathe again. No, dude, there's nothing in this equation that's worth it. It's affecting your health long term. It's going to destroy your finances. It's affecting your emotional well-being. Now you said it's affecting your relationships. So this thing, this house owns you. and you're going to be singing like, thank God I'm free at last when you get, and you don't even know, until you set yourself free, you don't even know how much, how awesome it's going to be. This is a horrible thing for you.

It's not good for John. I want John to have a home. I just don't want the home to have John. And this one owns you, my son. It owns you. Let it go. Are you going to sing, a little Elsa for us? A little frozen.

You may sing a little Elsa? A little let it go. Who's Elsa? It's from Frozen. Oh, okay. The granddaughters will teach you that soon enough. Soon enough. We need to cue the granddaughters to sing, let it go.

That's right. That's right. You know, it's so, you know, it's so common to for us. I qualified for that. As Americans, though, to be so wrapped up in our stuff. And I would put homes in this, cars in this, credit card debt, all of it, that for for the sake of a thing right in a house in of itself it's a thing that we deteriorate so much of our peace and our mental margin and our stress and like I mean so much of it for a thing

and it's not worth it even a house and again home ownership is something that like we are all about and we want you to get it and have that be part of your long-term financial plan but to the point that it's completely robbing you of a life and it's eating away at your relationship and your piece, all of it, it's just a thing. It's not worth it. It's not worth it. So, as Dave and Elsa would say, let it go. The minimalist, yeah.

We can just play their tune right now. They would love this. Yeah, yeah, yeah, exactly. Yeah, so, yes, we do want you to own a home. You said you're new to this stuff, but it's much, much less home than you're on right now. And which is hard too, John, because you're in one of the most expensive real estate areas. Oh, San Francisco, yeah. Yeah, in the Bay Area.

I mean, you're in one of the highest-priced real estate. Tokyo. New York and Silicon Valley. I mean, London. These are some of the most expensive pieces of real estate in the world. And that's where you're choosing to live, making $75,000 a year. Well, that's after taxes. Yeah.

So California, he's probably making $140, and they're taking half. Yeah, with their taxes. Yeah. That's true. Sorry, John. Sell it. Please. No, I'm not sorry.

I'm happy for you. I'm going to set you free. No, what you thought was a dream is a nightmare. I'm going to set you free from your night. Mayor. Marie's in Sacramento. How are you, Marie? Hi, I'm doing good. Thank you guys for taking my call. Sure. What's up? So me and my husband just finished up Baby Step 3D, and we are buying our first home.

So we just put in an offer for a house that we really like. It was very reasonably priced. We have about 5% down that you guys recommend for the first home. And in negotiations, the sellers weren't willing to give up. their appliances. And so that was going to be an extra $3,000 cost. We have like the 5% down, a little bit extra for closing costs, and our emergency fund. And I'm not sure if that $3,000 should come from taking a little bit less down,

our emergency fund, or if it's a sign that we're just not ready to buy a house yet. Okay. So it's not an emergency. Yeah. So it doesn't come from the emergency fund. That's an easy one, right? Yes. And I don't know if I go so far as it's just not assigned to not buy the house.

What's your household income? About $150,000. Which appliances? Which appliances? Fridge and the washer and dryer. Where's the fridge? The house that you're in, are you renting? Yes, we are.

So you don't own the appliances there at all? No, we do not. Okay. All right. You know, it feels like to me that you're buying a first house and this bump in the road scared you. And it makes you kind of go, oh, no, maybe I'm not ready. Because it's not, it's $3,000 when you make $120,000 a year shouldn't be, you know, we ought to be able to figure out a work around, right? Like we go get a refrigerator and we wait a month and a half. or we get used washer and dryer,

and we figured out where it's $2,000 or $1,500 to do all this. Or you buy a cheaper version of both and upgraded a year from now or two years from now and throw it out. I don't care. But the $3,000 scared you that you were like, we can't even cover $3,000. Can we own a home? No, it's not necessarily...

No, I was going to say, because the expenses of other things could be so much more. I could see how that's, like, intimidating, where you think, oh, my gosh, if $3,000 is throwing... us off. What if the roof, something happened to the roof or the, you know, the HVAC or something, that's, that's seven times more than just this. Like, what we do? You got an emergency fund for that, yeah, I know, but I'm just thinking of her thought process, like, how that can, like, make you stop and actually question, like, oh my gosh, are we okay for financially do this? So the contract

is still under negotiation, or are you signed for it? It's still under negotiation. We offered, like, 3,000 less than we had originally offered if they're not going to include the appliances, but we're still waiting to hear back. I think that since we're just at that 5%, I think I'm just like nervous that. You're borderline. I mean, you're not stroking a big check here. You know, the other thing you could do is say, I don't have to buy this house. Yeah.

And walk away and go buy a different house that has appliances with it and it fits your numbers. That's the thing. And so, you know, and the interesting thing happens when you, walk away from negotiations, sometimes they suddenly give up the appliances. Like, I'm not looting. What's the price range on the home? It's 320. Yeah. So these idiots are going to lose a $320,000 sale on a house over three grand of used refrigerator. You don't know yet. They've not come back. I know, but they're willing to put it on the line. They could. They're willing. You know, if I'm the agent, I'm looking at these people on dope slapping them. I mean, you guys are nuts. You're going to lose the whole deal over 320,

A $320,000 over a used refrigerator. You've got to be kidding me. So that's dumb on the seller's part, honestly. That's an easy. So then does that same logic go to Maria? I'd be like, you'd be dumb to walk away from a deal because of just a $3,000, you know, appliances. No, I, listen, if you can't figure out way to put appliances in it and put down 5%, I'm going to walk away and go to a different deal. I'm going to pick out a different house.

And I'll bet you money, good money. money that these people give up their used refrigerator. When you turn, yeah. You're a seller in the current real estate market in Sacramento, freaking California, and you walk away from a buyer standing there with money. It's probably not going to happen, is what you're saying. Dup it on steroids. Yeah.

No, don't do. Yeah. I'm negotiating this. I'm going to play hard and just go with Street Fighter and say no. Or refund us $3,000. Here's our deal, and it includes the. appliances or we'll look for a house where we can get appliances because we're taking that as a sign from God. I'm kidding. It's not. It's a used refrigerator. God doesn't use used

refrigerators as a sign. It's not in the Bible, but it's not second hesitations. But the, see what I'm saying. I mean, that's the thing. Yes. Yeah. Yeah. That's. So your prediction is Maria's going to come out okay. Or Maria is because you think they're going to say, just we're going to leave the appliances. They're going to cave like last week. Yeah, they're going to. Okay. Now, I'm like, yeah, they're going to care. Marie, call back in and see if Dave's right. We like to play this day.

Call back and tell me I'm wrong later because I could be wrong. Sometimes I do that. Sometimes I do that in a negotiation and I'm shocked at how stupid the people on the other side are. Like, you're going to walk away from a $3,000 deal for a used refrigerator. It's not even $3,000. If you put it in- And washer and dryer. Yeah, and a washer and dryer.

So what could you get for a used refrigerator and a washer and dryer to garage sale? I mean, come on. $7,800 maybe? So this is now, this is really. Now, this is really dumb. But people are. People are. That's the thing.

So, Marie, that's the way I'm looking at it. And I'm often wrong, but probably not on this one. Give it a shot. Give it a shot. Let us know how it turns out. Rachel's right. You can call back and take me to task clear. I lost my dream house because of you.

Dave, you can do that. That's okay.