Real Estate the Ramsey Way - What’s the Downside of Putting Less Than 20% Down on a Home?

Episode Date: February 9, 2026

Your home should be a blessing, not a burden—but unfortunately, some people learn that the hard way. Get the answers you need with Real Estate The Ramsey Way, and learn what to avoid and how to do real estate the right way.   Next steps: 🏠Have questions about how real estate can help you reach your financial goals? 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.   Listen to more from Ramsey Network 🎙️ ⁠⁠⁠⁠The Ramsey Show⁠⁠⁠⁠  🧠 ⁠⁠⁠⁠The Dr. John Delony Show⁠⁠⁠⁠ 🍸 ⁠⁠⁠⁠Smart Money Happy Hour⁠⁠⁠⁠ 💡 ⁠⁠⁠⁠The Rachel Cruze Show⁠⁠⁠⁠ 💰 ⁠⁠⁠⁠George Kamel⁠⁠⁠⁠ 🪑 ⁠⁠⁠⁠Front Row Seat with Ken Coleman⁠⁠⁠⁠ 📈 ⁠⁠⁠⁠EntreLeadership⁠⁠⁠⁠ 💸 ⁠⁠⁠⁠The Ramsey Show Highlights⁠⁠⁠⁠   ⁠⁠Learn more about your ad choices.⁠⁠ ⁠⁠⁠⁠⁠⁠  ⁠⁠⁠Ramsey Solutions Privacy Policy⁠⁠⁠

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. Brandon is in Atlanta. Hi, Brandon. How are you? Good. How are you doing?

Better than I deserve. What's up? Awesome. Yeah. So a quick question. My fiance and I just got engaged and we're looking to buy our first home. And I was trying to understand the, so basically we have the ability to put 20% down on the home. But based off of, you know, all the math behind the numbers, I've seen it seems more optimal to possibly put down less and have more liquid cash available to invest.

Call it maybe 10% down with having the extra cash you're able to invest long term and say Voo or QQQ or like a large cap ETF or index fund. But what if you get your thoughts on it? It's not optimal. your formula left out something called risk, and it left out something towards good nights' sleep when your home is steady. We studied 10,167 millionaires. 89% of them were first-generation rich, meaning they started where you are and became wealthy. The number of them that said we optimized our home mortgage by putting as little down as possible to invest and became a millionaire that way, the number of them out of 10,000 that said that was precisely zero.

No one does that in the real world. That's a mathematical theory that doesn't hold water. And the reason it doesn't hold water is you have not risk adjusted mathematically because you're adding risk to your life. So the typical millionaire, when they hit their first million dollars in net worth, have an $800,000 paid for house and a $700,000 or $800,000 401K. And they're sitting on a million and a half, and their house is paid for. And that's the typical millionaire.

Like, it was stereotypical. There were so many of them. It was crazy in that study in that piece of research. So what you left out was the fact that when you have no mortgage or you've got a rapidly reducing mortgage, there's more peace in your life. Your career choices are better. Your relationships are enhanced. Your physical body doesn't carry the stress with it.

And so you don't have stress-related diseases. All of these things play into your finances. And none of that was in your formula. So looking at it, you're saying including the risk-adjusted returns long-term, you're saying if you have the 30-year fixed mortgage, you're going to be a lot safer with that known variable and it continuing to decrease over time versus the 15-year fixed rate mortgage. But, yeah, getting rid of getting rid of the mortgage. As fast as possible. Yeah.

Going to my second question, which I am a long-time listener, so I assume you have an opinion on this, but wanted to kind of specify our exact situation. So we're touring some new construction, their town homes, their smaller homes that we plan to be at for, call it four to five years max. We're 26 now. We want to start having children in four or five years. Hopefully we'd get something a little bigger by then if our income continues to increase, which is our plan. What we have been seeing a lot of in our areas, people doing a five-year arm due to the fact that interest rates are currently relatively high with the assumption. from the Fed that they'll, you know, slightly decrease over the next few years, if we're planning on only being the house for call it five years or less, what a five-year arm ever makes

sense in that situation? No, because you don't know what's going to happen. You don't know what you don't know. So again, just playing the safe route. You have a plan, but your plan is not going to unfold the way you think. One of two things is going to happen. You're going to get wealthy faster than you thought, or you're going to have some kind of blocker come up, some kind of problem.

come up. That's going to slow down something. And you may end up in that house for a little while longer than you thought. So nothing works out exactly the way you think it's going to. And so you put together things that are sustainable and they're not based, that don't add extreme risk to your situation. So in other words, what I've talked to over the years, Brandon, and 35 years of doing this is I've talked to a number of couples who did something like you're talking about. And then they think the arm is coming up and adjusted, and then they had a child that had some needs, and they weren't able to continue with their income increases for a period of time because they had to take care of the kids' needs.

And they get stuck, and then they get hammered. The thing adjusts, and they can't afford to stay, and they end up selling the house to keep from losing it and become a renter again. Because they took a step back in the Mother May I game, because they move forward without permission, if you remember that old game. Yeah, and Brandon, let me encourage you. I mean, you're obviously, a well thought out guy. You're trying to look at the past of least resistance in your head. I hear what you're doing. You know, you're looking out at this angle. Yeah. But I just want to encourage you, Brandon, what's going to make you guys win with money, it's you guys. It's not these like small we're going to finagle the system and get this and that. I'm not kidding. If you just do really boring, common sense stuff with money, live on less than you make. Don't carry debt. Invest in your retirement. Pay off your house early. And you guys make an insane income. And you just do those things.

That's all you got to do. That's all you have to do. You don't have to try to shave a half a point here. Yeah. So this is optimize a quarter of a point there. Yeah. So Ramsey is, I mean, like our principles and what we talk about on the show because you've listened, it's pretty boring to guys like you.

There's other podcasters out there and they're finagling this and this and okay, we can get the spread here and they're doing this. I mean, but the amount of mental calories and how it actually ends up really truly working long term doesn't end up like that. And so people that follow this plan, while boring, right? It's not exciting. It's not the new thing. The amount of peace, you're solving for peace.

This is what it is. And when you do that and you do common sense things and you don't try to make it all complicated, it's an enjoyable life. It really is. You're obviously. I hear what you're saying and what you're doing and I get it. And I think there's like the math nerds out there and they love the stuff. But I'm telling you, people that win with money long term, it's them.

that they're the reason they win. It's not this system that you kind of rig here or there. Yeah, to verify that, Rachel. Brandon, you're obviously brilliant. I mean, the questions, the way you formed your sentences, you actually know what you're talking about, which is rare. Sometimes I get people asking these questions that you're asking, and they don't know what they're actually saying. They just heard it on TikTok, but you actually know what you're talking about. And that's kind of work against you if you're not real careful. You're going to analyze your way into paralysis of the analysis if you're not careful. So, do that. So I'll give you another example of what Rachel's talking about, Brandon, and the data.

Because what we keep following is the data of what actually works, not the theory of a think tank math. It's not math think tank. Okay, so here's the data. The people that end up with a million dollars in their 401k did not pick, on average, did not pick the best possible mutual funds. They picked a subpar mutual fund. There were plenty of funds that outperformed what they picked. Now, they didn't pick the bottom 20%, but they didn't pick necessarily the top 20% of funds out there. They were somewhere around that 80%ile.

And so I'm looking at that going, you missed it, you missed it! Because I'm a math nerd like him, right? And what the data says, and this is that what they find is that what they did do is exactly what you're talking about. They weren't that great at picking the right fund. But what they did do was they never

missed a month consistency forever no matter what they put money in their 401k every stinking month prom dress

transmission goes out kids sick dogs got cancer every month they put money in every month markets up markets down what they didn't underperform in was consistency yeah they over index

on consistency and they under-indexed on fund choice. And that's an example of what you're talking about. They really weren't that mathematically savvy or mutual fund savvy. They just were consistent. Versus the amount of people that don't do anything. And they have theories of what they may want to do, but they know actually.

Or they try this little thing, and then they try this little thing, and then they try this, and they're always scheming and scamming, trying to cut a half point off. Yeah, and it's the same thing about paying off the house. We get that call all the time of people have, you know, $80,000 left on their

mortgage and they got 90,000 sitting in some fund over here. And they're like, yeah, but I could be making X amount. And the amount of people we've had at live events, people here, I mean, that we're around, that we asked the question, those of you that paid off your house, raise your hand. And we'll have an auditorium of 2,000 people. And at some of these events, it's like, it's, yeah, I mean, there's a lot of them. And we say, okay, keep your hand up if you regretted it. Who regretted paying off their house? None. None. Zero. Never. So again, that's not in a formula. But I'm telling you like when you solve for peace as dr john deloney says with your money that is worth it that's worth the small percentage point here or there because you have peace and you sleep good at night and you have a

happy family and a wonderful new marriage and little babies and it's great and it's great and it's okay to wait a year after marriage to buy a house too by the way hey guys thanks for listening to real estate the ramsie 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 Solution, dot com slash trusted agent that's ramsysolutions.com slash trusted agent. Laura is in Jacksonville, Florida. Help us, Laura. What's up? Hi, Dave. Thank you so much for taking my call. How are you doing today? Better than I deserve. What's up? So my question is, my husband and I received our escrow analysis today and we are going to be short $2,400. So we either can pay that up front or have it rolled into our payment, and I'm wondering what is the best thing to do. First and foremost, do a full audit on the thing because most of those are calculated poorly.

So what happened with ours was our, we just got our mortgage literally last November, so when we had it for a year, they underestimated our property taxes, number one, and then number two, we forgot to file for our Florida homestead exemption. So we paid property taxes on a full value of our home. Okay. All right. So you have filed for that now? Have the property taxes come down? Yes. So we have the homestead exemption in place for 2026, but they don't print the tax bill until October. Yeah. But the, wait a minute, so you, no, they can calculate it, exactly. I called them this morning and they told me they couldn't.

They have a valuation on the house. There's a tax rate on the valuation. A sixth grader can calculate it. I calculated it. I had it already. I have it on a spreadsheet right in front of me. And they told me that unless I could provide them with an updated tax bill, they went by the current tax bill. Oh, you're talking about the idiots at the mortgage company, not the tax people. Correct. Oh, yeah.

Okay. All right. Now that makes sense. Okay. So my husband and I are in babysept two, but in January, I get three paychecks plus a bonus. So I have, we have the money to pay the shortage. Yeah, the problem is it's going to be an overage after you pay the shortage. It is going to be, yes.

And that was one of the things I talked to my husband about was, what do we do? Do we pay the shortage up front? No, I wouldn't pay it up front. It's like prepaying it and putting it in a savings account of the mortgage company, then they're going to give it back to you with no interest. So I'm going to pay it as slowly as possible because it's still wrong. It is, yes. So, like, they calculated our new payment without the shortage.

our payment's going to go up $150 no matter what, because what their estimate on the property taxes was versus what our actual property tax bill they received. I think my answer is, I want to talk to your supervisor. Give me to someone who knows how to think and not answer without thinking, because your answer is not acceptable to me. You want me to overpay escrow now, and so now there's going to be an overage, and you people are going to owe me. So I don't like saving money at no interest with the mortgage company that covers you.

you can't do math. So let me talk to your supervisor. I'm going to become a problem for them. Got it. God, they're dumb. Oh, that's so aggravating. Most escrow accounts are screwed up. That's what's so aggravating. But because it's really not hard. It is one-twelfth of the actual tax and one-twelfth of the actual insurance bill. And we should have both of those in front of us. And that's what the thing ought to be running out. Now, are you in the hole from last year? Did they come up short last year? Yeah, so the mortgage company estimated our property taxes to be $3,500, and it's a new billed home. So they said they didn't have anything to go off of.

They estimated it to be $3,500. Our actual property tax bill without the home set in place with $5,300. So you did pay that. We did, yeah. And that doesn't get refunded. It just doesn't get charged next year. Well, they... You're not going to get that money back.

That money's gone, right? Yeah, correct. So we would be paying the shortage. Yeah, that created the shortage. And I don't mind paying that shortage because that's an actual shortage. What I don't want is an adjusted payment going forward based on wrong numbers. Yes, and that's where part of my problem is. Yeah, that's the one where I'm going to talk to the supervisor.

The actual shortage. Let's pretend your payment was recalculated for January accurately from January on, okay? whatever shortage there is up to that point, yeah, just pay that. Okay. But don't wrap it into the payment, you're saying. Yeah, don't wrap it into the payment. And then have the proper payment going forward. That's the one I'm talking to the supervisor because I want the payment properly calculated.

I have the tax bill in front of me. I have the insurance bill in front of me. Here's actually what escrow should be. And when you properly calculate that, that's the payment I want in January. And until you can tell me that's going to be the payment, I'm going to continue to ask for whoever's on the phone supervisor until I get to the president of the freaking mortgage company. Find somebody over there that can add because it's real simple because I'm not trying to create a shortage and I'm not trying to live off of you. I'm going to write a check for the existing shortage, but I don't want to create an overage next year because you guys didn't do the math right.

You didn't do it right last time either. Yeah, because even in a new build, you can calculate property taxes closer than 50, closer than 50% off. Unbelievable. Wow. Oh, my goodness. Oh, my goodness. Yeah, that, no, nope, nope, nope, nope, nope, nope, no, no, no, no, no. Yeah, so it is not a bad idea to jump online if you have a mortgage once a year and check and make sure they're having the right amount, you know, right amount in your house payment for one-twelfth of your insurance and one-twelfth of your taxes.

Because truthfully, this is what you deal with at the other end. It's the lowest common denominator answer in the phone over there. and you know apparently they studied something other than math in college or not they probably didn't make that anyway in eighth grade or wherever it was that they missed the lesson but yeah it's not hard but it seems to be hard