Real Estate the Ramsey Way - This Is a Stupid Way to Buy a Home

Episode Date: April 27, 2026

Is a 7-year adjustable-rate mortgage a smart strategy if you plan to pay off your home early? We break down the risks and trade-offs. Next steps: 🏠Not sure what to do next when buying or selling your home? Check out our ⁠⁠Real Estate Home Base⁠⁠ for free tools and resources to guide your next steps. 🏠And if you’re ready to buy or sell your home, ⁠⁠connect with a RamseyTrusted® real estate agent⁠⁠. They’re experts who’ll help you confidently navigate homeownership the way we teach. Explore more from Ramsey Network: 💸 The Ramsey Show Highlights 🧠 The Dr. John Delony Show 🍸 Smart Money Happy Hour 💰 George Kamel 🪑 Front Row Seat with Ken Coleman 📈 EntreLeadership   Ramsey Solutions Privacy Policy

We were completely vet free. We're a baby step 3B. We've been saving the last about two years for our down payment of a home. We decided to go with a new build, and we chose a seven-year arm as they were having some end-of-the-year incentives for quick move-ins. And we thought that would be a good idea. I kind of think I know what you're going to say. I have all the numbers and specifics of it, but we feel like it's going to allow us to ease into the home buying purchase and all the payments that go with it. And we can afford it once the seven years is, you know, the seven years is. up, but we want to get your opinion on it. You can afford it once the seven years is up. What do you mean? So for the first seven years, we're going to have a lower rate. So the first year will be a one seven. Second year will be a two seven. And then at the end of it, it's going to go up our payment, and it's going to plateau

at a certain point. But the first seven years, they're kind of giving us a discounted rate, so we don't have to pay as much. Yeah. And a hundred percent chance at the end of that, it's going to be more. Yes, yep. So you bought a house you couldn't afford? No, we could afford it.

Yeah, it's actually quite quite in our budget. I mean, if you took out a 15-year fixed, can you pay it? Well, the 15-year fix would be 32% of our taking pay. So you bought a house you can't afford? Okay. Yeah. I mean, you called in here, Willis, knowing what I was going to say, right? You've been here before.

You've been listening for more than 20 seconds, haven't you? For the most part, for the most part. Our goal, and, you know, I've heard a lot of finance guys talk about and spreading, making the spread on the stock market and those sort of things. You know, we plan on starting a family and, you know, the first time homebuyer, and we thought that it'd be incentivized to have, like, that lower payment the first couple of years and use that extra money to pay towards the principal. We plan to be super aggressive where we have that wiggle room to pay down the principal as much as possible and then refinance at the end of the seven years.

Well, that's assuming something doesn't happen that prohibits you from refinancing in which case you get foreclosed on. Because you've added risk to your scenario. And for 35 years, I've taken calls from people who things that they didn't expect to happen to them happen to them. And they were unable to refinance. And so, and you can't pay aggressively on this. Aggressively might be the emotion, but it's not the math, because you don't even have the money to pay a 15 year. You don't have enough income coming in to pay it at 15 years. So that means it tells me you can't pay.

You can't aggressively. You have enough income. No, you don't. We have about, you're 15 years, 32% of your take home pay. Yeah. That tells me mathematically you don't have any money to be aggressive. The aggressive word is an emotional word, but it's not a mathematical reality. I guess the point, we're looking at an income of last year where I came home with about 180,000.

Looking forward to this year, I'm projected to make at least 260, and my wife is not working right now. So we're going to very quickly double our income as this year. Assuming everything goes the way the plan of mice and men want it to go. The last two months is the number that we're looking at, you know, we should be able to. with this new year. I'm sorry, let me stop this. Okay. What is it that you want from me?

I guess your opinion, with the seven-year rate, I think it's stupid. With our extra margin, it is stupid. So should we cancel the loan? You should have a 15-year, you should have a 15-year fixed rate where the payment is less than a fourth of your take-home pay. I've said that like nine million times on the show,

and otherwise you're buying too much house. And if your income is going up so quick, and you're going to be so prosperous, that should be no step for you. It should be no issue for you. But you're rationalized the piss out of this, man. I mean, you've got rationalization down, and you've crunched so much math that your eyes are crossing, and it's wrong because what you're doing is with an adjustable rate is you're taking on more risk. And 100% of adjustable rate mortgages start in the hole.

It's a margin over an index, and the margin plus the index is always more. more than the introductory rate, which means at the first point of adjustment, it's going to max. At the next point of adjustment, it's going to max. At the next point of adjustment, you've lost your dad-gum job and the thing maxes and you lose your house because all this prosperity that you projected is the only possible outcome in your life is wrong. Other things happen in your life.

And you've set your life up to not survive any storms. And when the big bad wolf comes and he blows your straw house down, that's what's going to happen. I'm telling you to build a brick house. be the pig with the brick house, be the third pig. And that's what we teach here. This stuff works in good times and it works in bad times. And it's the only system that does.

So you got, man, please rethink this. You ask me my opinion and I love you enough to tell you the truth. I want you to win. I hope you prosper. I hope you go make 160 and 260 and 360 and 460 and nothing bad ever happens in your life. life, but you'll be the first person I ever met that never had anything bad happen in their life. Yeah, you're just, you're assuming risk with the loan and then assuming that you'll have

nothing bad happen in your life. And I understand it because you're in your early 20s, but you're talking to two older guys. And honestly, you got more time with Dave on this topic than I think anybody else would get. You're very generous right now. I can't believe the call lasted as long as it did, but you're very generous. I think he's got a good heart. Well, of course he does. And I'm such a math nerd. It's the same mistake I would have made it 24. It's the same mistake I did make it 24.

It's why I went freaking broke? That's the point. So don't call somebody who's been doing it for four decades and who've made the mistake himself and try to talk them into your version of it. You know, this is the thing. We don't know what we don't know when we're in our 20s. So, you know, listen to wisdom and experience. What I'm looking for after I went broke, when I was 28 years old, I lost everything, Willis,

because I was stupid. And I assumed the mythology that everything was going to keep going like it had always gone. And it never does. Things change. And the tax law changed. The banking laws changed. The S&Ls went broke. And Dave was on the hook for something that couldn't possibly go wrong.

And it went wrong big time. A lot bigger time than even what we're talking about with you. A lot bigger time. And so what I've learned is that I'm looking for systems and elements of truth in my marriage, in my relationships, in my money that work in good times and they work in bad times. Because I'm going to have both. If it only works when everything's working, it's not the truth. It's a facade.

It's you're driving down the street and you walk through the front door of the house and you realize you're on a movie lot and there's nothing behind the front door. That's a facade. That's a fake truth. It looks like it's something, but there's nothing back there. And so I want to build my life after having gone broken, almost losing my marriage, almost 30 plus years ago. And I want to teach other people as often as I can to build something that is the third pig. be the third pick, be the brick house. Take a little longer to build it, buy a little less, take a little more time, be a little more

careful with the budget. Don't try to be tricking everything. Don't look for a shortcut. There's no shortcut to any place that's worth going. And just take your time. No discipline seems pleasant at the time, but it yields a harvest of righteousness. Live like no one else so that later you can live and give like no one else. and that's the basis for everything we teach on the show.

If you want to do the hot and bothered, sexy thing and go do it, all of you, you're not going to like it when you call in here, because I'm going to love you enough to tell you the truth. You know, the one thing you missed, you gave him great advice, but your very first response should have been. What are you talking about, Willis? That's a dad joke. Hey, guys, thanks for listening to Real Estate the Ramsey Way. Now, if you're here, you're probably thinking about buying or selling a house. It's exciting, and one of the biggest financial decisions you'll ever make.

But you don't want to do it with an inexperienced agent who will rush you into costly mistakes, like the ones some of our callers find themselves in. You need a pro who knows what the flip they're doing and will keep you on track with your financial goals. That's why we only recommend Ramsey trusted real estate agents. These are vetted, hand-picked pros who actually listen to your needs, guide you through the process, and fight to get you the best deal. To find a Ramsey trusted agent near you, go to Ramsey Solutions.com slash trusted agent. That's Ramsey Solutions.com slash trusted agent.

They're putting in low-income housing literally across the street from us, about 600 feet from our house. We still owe 150 in mortgage, but we got a really good deal on this house like five years ago because it was a direct sale. and we knew the folks that were selling it. We have some really, really good neighbors. My husband now just works 10 minutes from the house when he was before commuting about an hour and a half. And I have a 3-year-old and a 1-year-old, and we're planning on having another. So we're just trying to figure out if we should move because if we move anywhere,

it's kind of we won't be able to afford it. Like, whatever we get on this house will likely be less. If we stay, from what I read, when Section 8 goes in about the housing market, the area loses about 40% of market value. Yeah. Okay. Well, let's take a deep breath. Okay. Because I would have all those same concerns that you have.

Legit concerns. But we have to parcel out the concerns versus the facts and see what the risk is. This is all about mitigating risk, right? Right. What are your neighbors saying? Is anybody else's informed? as you are? Are they more informed? What do we know? More informed some of us like, so we've gone to our town meetings. Okay. And basically the town voted no, but the state came in and overrode us.

Okay. And said too bad, you have to do it. And our neighbor has lived here, like they're in their 60s, and they both grew up in the neighborhood, so they don't want to leave. Okay. What is your house? everyone in our street. Have you gotten some legit real estate comps? So a street is a similar size to us that was built. So our house was built in 2013, and there's an older house that just sold for almost 500, and we bought our house for 430. Okay. But you only owe 150 on it. But we only owe 150, yeah. We got 150. One other thing I want to address, and it's not a back and

forth, but I do think it's important in this process to mention that, you know, you said something a few minutes ago that, well, if we move, there's no way we're going to be able to afford to live somewhere else. And that's just simply not true, right? Now, you may have to move further than you want to, but I do think when you're making decisions like this, you can't be operating in really extreme falsehoods, okay? Because then you'll end up making a decision based on a false narrative. So do you understand what I'm saying and why I'm challenging you on that? Yeah. Because you may, this may be the best option for you guys to move. I don't know that it is yet. But if it is, you can't have this mindset of, well, we're just simply not going to be able to afford to go somewhere

else. The state has unfortunately come in and put you guys in a pickle. And that stinks. But now we've got to make the best decision moving forward. Right. Do you have any information on how it's going to be like parceled out? Is it going to be a lot of units or is it going to be spread out? So they're putting in 40 units on like two acres. And they're really congesting our block. Like we said the town tried to go with 20, but the builder said we need 40 because they don't pay. They don't usually end up paying their rent on time. So they're really. lying on states and federal subsidies. Do you have a real estate pro?

No. Okay. Ramsey Solutions.com. What is the actual website, so I give it correctly here? Teams going to help me out. We'll get it to you in just a second. What is it? Okay. I'm not hearing in my ear.

Oh, can you hear me? Okay. So ramsysolutions.com slash agent. Is that right? Okay. Sorry about that. I just didn't have that in front of me. Because here's the deal.

I want you to get two or three opinions from some very successful real estate pros in your area. I mean, I'd have them out this week. And I'm just going through my checklist, Jay, jump on here. But I'm going, I want some pros who've been in your market for a long time and they're crushing it. And I'd get their opinion. Multiple opinions, two to three opinions. So that now we may realize, we've got a little bit of time. Or, no, we need to get out in front of this and list this house right.

now. They're going to have a really good idea of what's going on in your real estate market. Because the last thing you want to do is put it up for sale, right? That's right. And, you know, this thing, drag on, drag on, drag on, drag on, and you hurt yourself. Again, I have no idea. And that's why I want to stay real, you know, real careful here about making some type of real strong recommendation on what you should do as to whether you list it right now or not. But if you get some advice from three really good real estate pros, and they're all saying the same thing, and they're going, I'd get out while the getting is good, then I would do that and realize that I can re-establish myself.

And you've got a lot of equity in this home. So you got options. Jade, what else would you be thinking? My biggest thing was the concentration of development and how much per, like how many units per block. Is it going to be a thing where there's just a couple single family homes or is it really going to be a high concentration? obviously a higher concentration could soften the market for you over time. So that's the thing that I was worried about. So I'm with Ken, I would get with somebody that's a professional specifically in your area that can give you more concrete information on what they believe

the timeline, the best timeline would be. Yeah, absolutely. Sorry that's happening to you.