Real Estate the Ramsey Way - What is a "Shared Mortgage"?

Episode Date: February 10, 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 home ownership with confidence. Tammy is in Nashville. Hi, Tammy. Welcome to The Ramsey Show. What's up? Hey, thank you so much. Thanks for accepting my call and sharing your knowledge. I just have a quick question.

My husband and I are actually wanting to buy a home. and he wants to do the shared mortgage. And he's trying to convince me that it's a great thing and that it's so wonderful. And it sounds very stupid to me. And so I would just like to know what you... Don't hold back, Tammy. Tell us how you really feel. Well, I wanted to know what is this and the negatives and the positives if there is any positives.

That's my question. shared mortgage, negative and positive, and is it a good thing? It is not a good thing. Your instinct is correct. You win the argument. Now, let's talk about why. Praise the Lord. Yeah, let's talk about why. You have a good news for, you have a good nose for stupid. Yes, sir. So, you're like my wife in that regard. But so a shared appreciation mortgage is what we're talking about. and what this is is the mortgage company in return for a lower interest rate and in return usually for lesser down payment, you give up a portion of the increase in value. And so you buy a $300,000 house and it goes up to $500,000. The sum of that $200,000 increase goes back to the mortgage company

when you refinance or when you sell. So you do not get all of the growth in value. The downside is two things. One is it can trap you and make it very difficult to refinance if you were able to and get rid of them, okay? Get rid of that loss of growth. And it can also make it difficult to sell. And of course, the third thing is

is you gave up some of your growth. and the trade-off's not worth it is what it amounts to. I don't know why he's being pulled into that. That's very strange because the thing is very, very few mortgages, very, very, very few people do this. I thought the program was actually dead until a few months ago. I heard somebody bring it up. I think somebody's out there promoting it or something because I hadn't even heard

of it in a long time. The first time I heard of it was back in the 90s. And in high interest rate environment, you know. And so, you know, interest rates were really high, and people were trying to get the rate down by giving up some of their future appreciation. So, Tammy, kind of think of it this way. Have you heard these things with some of the student loan things where you can go to a certain college and you don't pay as much to go to the college, but you give up some of your income to that college? No, I've never heard of that. Same deal.

Same kind of a thing here. You're selling off your future for a little bit of a better deal in the present. So you're saying that once, if you ever decide to sell or if you ever decide to whatever, you have to give them a portion of the value? Yeah, of the increase in value, yes. So if you bought a $300,000 house and it went up in value to $500, and you had a 20% shared appreciation as an example, then you would give up 20% of that $200,000 growth are about $40,000.

when you refinance to get rid of that mortgage. By the way, if you wanted to just pay it off, if you started making a lot of money and you were working the Ramsey plan, you wanted to pay it off, you got to pay off that appreciation that you owe them too, not just the loan balance.

Well, here's the idiotic thing to me is we have $400,000 or whatever in cash liquid. We could just buy the home. But he doesn't want to do that. He wants to go through the bank because in his mind he's keeping his money and making some money from the bank. And I'm like, why would the bank do that? That makes no sense to me.

Well, the bank did it because it's good for the bank. But it's not your husband's wrong. You're right. Pay cash for your house. You have the money. You are exactly right. That's what I told him. And he's to listen to his wife.

And his mind, he's thinking he's keeping this money for somehow in his possession or something. And I'm like, but I don't understand why we need to go through the bank. loan to bank our money to get a mortgage through the bank. Here, here, let's try a couple things, okay? Number one, you could say this. Let's pay cash for the house. If two years from now, after we pay cash for it, you want to talk about getting a mortgage, we'll talk about it.

You know how hard it is for somebody emotionally to put a mortgage on a paid-for house? He'll never do it. Okay. So try it, honey, try it my way, pay cash for it. for two years, and then we'll talk about it. So that's thing number one. Thing number two, all right? We did the largest study of millionaires ever done in North America.

I say this all the time, because we did. We studied 10,000 plus millionaires, the number of millionaires that's out of 10,000 of them, that said we became a millionaire by borrowing money on our home so that we could invest, what your husband's talking about. The number of millionaires that said they did that out of 10,000 was zero.

Okay. So the data says the facts are that your husband's theory is wrong. Okay. One last thing, and I'm going to keep throwing stuff at him and at you too, but here's the thing. Good, good, thank you. When I went broke, I did whatever I wanted to do

because I'm really smart with math, and I did some stupid butt stuff like he's trying to do. And I found in the Bible, Proverbs 31 says, who can find a virtuous wife? For her worth is far above rubies. The heart of her husband safely trusts her, and he will have no lack of gain. Now, that doesn't mean he can't argue with you about this. He should, and challenge your theory. He should. I do with Sharon, with my wife, but I trust my wife to have common sense and input.

Ken trusts Stacey to have common sense and input. Hang on, I'm going to give you a copy of the book, Baby Steps Millionaires for you and your husband to look at. I think it'll help your husband with this. He's trying to do a good thing, a bad way. It's a bad move. You smelled it out. Congratulations.

I'm going to say what I think a lot of Americans are thinking right now. that Tammy would be a great co-host one time with you. Were you not thinking that, James? I mean, was she let off with stupid with the same passion that Dave says it? I thought, Tammy, America would love Tammy. I love Tammy. She's a treasure.

I just wanted to say that. I think that was one of my favorite calls that I've ever heard because she's on it. She makes no mistakes about what she thinks, and I love her. I think she's great. I don't think communication is a problem in their home. No.

You and Tammy, you and Tammy. Tammy, co-coaching someone, would melt the internet. It would melt YouTube. Picture Dave fired up and Tammy a little fired up. It would be great radio. You're awesome, Tammy. Very fun. You're amazing, lady. Well done. Melanie's up next in Charlotte, North Carolina.

How can we help, Melanie? Hi, George and Dr. John. I'm so excited to be on today. I told my husband I was not going to fan girl, but I did not know that it was going to be you guys on here. Wow. You're a fanboy and so it's awesome. It's so kind. Okay.

So I guess I'll ask my question first and then kind of give you guys some background. My overall question is, am I being greedy when it comes to buying a house? So kind of some background. My husband and I paid off $180,000 of debt in January of this year. And, yeah, it took a long time, but we made it. So since then, we've fully funded our emergency fund with $20,000, and we are in Baby Step 3B, and we have about $45,000 in our down payment account right now. So I guess, you know, in listening to your show, you guys kind of talk a lot about if you can get into the market, you should get into the market, you know, because prices are only going up.

you know, I guess my kind of question is I wanted to buy house that's around $350,000. You know, that's just kind of the area that we want to be in, the size of house that we want to be in. And that would kind of take us about seven to eight more months of saving to do that. And we could just buy, you know, a smaller, probably $250,000 house in the next couple of months to get into the market. But it wouldn't be exactly like what we were wanting. So I was just kind of curious what your guys' thoughts were on that. What is your after-tax household income per month? So we bring home around $10,000 a month.

When we paid off our debt, we did start investing 6% into retirement. We're 29 and 31. So we just kind of felt like we should start a little bit while we started to save our down payment. Okay. So you're okay to sort of sacrifice a little bit? little bit and go, hey, we could be using that investment money for the down payment. We're going to do a choose your own adventure, which is totally fine in babysat three B. You can invest anywhere from

0 to 15% when you're in 3B saving that down payment. So you're doing it the right way. Everything's fine, but you're saying, hey, I want to buy it off more than I can chew because I'm getting a little antsy to jump into this house. Is that essentially what's going on here? Well, if I bought the house now, we would just buy like just a smaller house that we would move out sooner than if we just kind of waited the seven to eight months to get into kind of the bigger house in the area that we wanted to be in. But you're saying in seven months you'll have enough to get the 350 home and do it the right way. Yeah, we're putting about six grand into our house account now like every month. So I don't think it will take us that long. I don't think this is

greed. I just think it's a lack of patience because seven months is going to fly while you guys save. And when you step into that home, it's going to be this is the house instead of. well, this is fine, but really the next one, it's going to have this. And so I just, you know, I've been around the block when it comes to, you know, buying houses and selling. And I think it's wise to get in the market when you can, but I don't want you to just buy a house because you should buy a house. Right, right. Okay. So it wouldn't be like beyond crazy to just kind of leave a seven eight months. I would say, just go ahead and get it. But seven months is a different timeline. Yeah, it, I mean, It wouldn't be more than a year, but I think it will be about seven, eight months.

Okay. How much you have in your down payment account right now? We have about $45,000 in there right now. And in seven months you'll have closer to what? $100. 80. Yeah, six times seven plus $35, so about 80. Okay.

And that's if nothing changes. What if one of you gets a raise or you work extra or get a side hustle? Yeah. Yeah. So my husband is actually in the process of getting a raise now. So we're just kind of waiting. for that to finalize. Personally, Melanie, I would crunch the numbers and go, how can we spend less, how can we make more to make this happen in five months instead of seven? And make it a fun game,

make it a fun challenge. And I guarantee you'll get there faster than you think. And then work with a real estate pro. You can jump on Ramsey Solutions.com slash agent. And you can begin the process to go, okay, are we actually realistic here? Are there houses that we love in this price range? And can we get the deal before someone else snatches it up? And I would begin the process. I mean, six months is not a long time. What if, Melanie, what if you decided together as a couple, we're going to buy ourselves a house for Christmas? That would be, that would be pretty cool.

Our birthdays are right there. We share a birthday too. Okay, so our birthday, our double birthday Christmas present is we're buying ourselves a really nice home. Okay. Yeah. And you'll start getting after it. And you'll have, you already have, what, 12, 15% of a down payment already towards

this $350,000 house, right? Yeah. Yeah. So in the next six months, if you all start kind of looking around, and you get close to, you can pull the trigger now if you want to. Yeah, I know. I just, you know, I don't,

that 20%, I don't want to get locked into that PMR. I know. You're not locked into it forever. Once you cross the 20% threshold, you can write a letter and they'll drop it off. Okay. But I'm just saying,

I like the idea of y'all having a destination because it makes it very real. Right. Because you're going to get 20%, and if you just keep floating along, it's easy to go, let's get 25%. And then like,

Well, let's just do 50% We'll have to house And it just keeps punting it And moving it and moving it Yeah, that has it started a little bit Because, you know, I brought all the debt Into our marriage And so, you know, I don't ever want to go back

You know what else you brought, Melanie? Joy. Happiness, fun. And that's priceless. He has never, ever, ever said anything about it. He just put his money to it And we got moving and grooving. And that's what tells me

This is going to work out. You both are aligned. You're both. excited. You're both working the plan. And that tells me it's going to happen faster than you think. And so stay the course. You can start home shopping now, work with that pro. And when the time is right, you'll know. But I don't think you have to jump into something now. And I don't think you have to wait eight months or else. It's not that binary. Send us a photo of your Christmas home. I think that'd be amazing. That would be fun. I will absolutely do that.

Can't wait. Congratulations, Melanie. Wow. It's funny, John. The people that are working the Ramsey plan, they're more like, oh, and the people that are just impulsive out there, like, yeah, I got, the only debt I have is like some car loans and student loans, like, I don't know, 80K, like they're very nonchalant. And the folks following the plan are like, I don't know, I need that, you know, they're so dedicated, so diligent, so disciplined. But I think that's what you start to feel the piece as you go and you feel more and more like, oh, this plan works, right?

You keep, and you just, it slowly works just way down the tracks, man, I love it. Yeah, we got a lot of real estate calls on the show, whether it's, should I move, should I buy, should I sell, and our team create a really great resource. It's totally free. If you go to Ramsey Solutions.com slash real estate, we have lots of free tools and resources to reach your home goals, preparing to buy home buying, home selling, wealth building, investment property, finding an agent, calculators. I've got a new in-depth home buying course that our team created. And so a lot of great features on there. And one of my favorites is the home payoff calculator. That's where it gets real. You're like, we're paying how much an interest

a month? Go look at how much you guys are paying. America, how much you paid an interest this month. Then do the home payoff calculator. See how much faster you can pay it off and how much interest you'll save. I guarantee that'll put some pep in your step to get to freedom and get that eagle over the door. Have you seen that, John? The eagle. Eagle over a door represents this host has paid off.

Is there anything more American and rock and roll than that? I can't think of anything. I mean, the Rolling Stones. I guess they're from overseas, so they're not like that at all.