Real Estate the Ramsey Way - Why You Shouldn’t Buy a House If You’re Broke

Episode Date: July 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 home ownership with confidence. When you do a smart thing, a stupid way, it's stupid. It's no longer smart. That was deep, wasn't it? Well, I mean, here's a smart thing. Getting a car that's reliable to get your back and forth to work.

going and leasing a car that costs more than you make in a year is doing a smart thing, buying a car, a stupid way. And so you made it stupid. I've done that. All of you have done that. If you've made mistakes with money, you know what that makes you? Over 12. Everyone has.

Everyone's done something dumb with money. And I think one of my pet peeves, I guess because my parents were in the real estate business growing up and I got in the real estate business immediately. Three weeks after I turned 18, I got my real estate license, sold a house two weeks later to a guy who buys a house from an 18-year-old. I'd manage to pull it off. Anyway, so I love real estate, and I love the idea of homeownership, and all of our data around becoming a millionaire says that home ownership and getting a paid-for home is a key element to your first $1 to $5 million of net worth. So if you want to become a millionaire, there's really two basic. things you have to do. The data tells us. One is steadily invest in your retirement, like 401ks

and Roths in good growth stock mutual fund over a 10 to a 15 year period of time. And the other ones get a nice home that you can afford and get it paid off. If you do those two things, the data says you are more than likely going to be a millionaire as soon as that happens. And it's about a 10-year curve to a 15-year curve, something like that. But then we took that, or we took the idea of, hey, getting extra skills, getting an education, a four-year degree. It's a good thing. But we turned it into a stupid thing because we did a smart thing, a stupid way, and people go $250,000 in debt to get a degree in left-handed puppetry. And so you turned education into something stupid, which is oxymoronic as it can be.

So buying a home is the same thing. broke people shouldn't buy homes. Well, that's mean, no, that's love. Because you know what happens if you're broke and you buy a house? You get broker. That's why they call them brokers. When you're broke and you buy a house, a house will bury you. And so I live in my mother-in-law's basement and I want out, so home ownership is on the horizon.

No, it's not. You're broke. So you've got to work and, you know, start getting yourself out of debt, build some savings, and get yourself up on solid ground before you buy a house. Otherwise, the house is going to snap your neck. It's going to crack the whip on you. So buying a home is not a blessing when you're broke. If you are living in your mother-in-law's basement and you want to be free,

I don't blame you. Go rent a one-bedroom apartment. This is what normal human beings do. They don't go buy a half-million dollar house. house with a cosigner. Let me tell you, if you have to borrow money to do this stuff, you shouldn't be doing it. If you're going to borrow money to buy a house, a 15-year fixed with no cosigner is the maximum we're going to do.

But cosigning is straight up dumb. If you have to get a co-signer, it's because you're broke. It's because you're not credit worthy. The bank who loves to lend money more than my dog loves to eat. which is a lot. The bank loves to loan money, more than anything else. They want to loan money. And if they won't loan your money, it's because you don't need to be borrowing money.

Hello. So Proverbs, and it's even in the Bible, Proverbs 17, 18 says one lacking in sense, cosigns for another. If you look it up in the CEV, the contemporary English version, it says, if you co-sign for someone else, you're stupid. That's what the Bible says. Wow. So don't be buying a house because always buying a house is a good idea. Always going to college is a good idea. No, it's not. Going to college is very smart if you know exactly what you want to do and you're studying to do that thing. And it is a thing that doesn't have you end up being a barista, a failed college student that got a degree in something that's

absolutely nuanced and worthless. And you've got a freaking master's degree in it, which makes you double stupid. Same thing buying a house. Let's go buy a house in a way that the home becomes a blessing. So you're out of debt. You have your emergency fund in place. You take out a 15-year fixed rate loan where the payment is no more than a fourth of your take-home pay. And you don't need a co-signer. That's it. And then you're ready to start talking about buying house. Until then, the house is not a blessing. It's going to snap your neck like a twig, man. and there's all these smart things that are out there, and it's like there's an entitlement thing,

and it's like, well, you know, it's just not fair that people can't buy a house, and you shouldn't make fun of broke people. Well, could God, I've been broke people a couple times in my life, and I've decided I don't like it, so I'm not going to do it anymore. I'm going to do what it takes to not be broke people. I'm going to work like a maniac, save like a maniac, and not spend like I'm in Congress,

and have a plan, you know, and execute, execute execute and you know so it's the same thing with a career it's always smart to be a doctor no it's not yeah if you hate being a doctor yeah that's a dumb idea my dad always wanted me a bit of a doctor that's a dumb reason to be a doctor i don't want to be your patient no thank you and so we do these smart things in dumb ways and they destroy our lives because people put them in the bucket is no matter what no matter what the cost it's worth it to own real estate it's worth it to go to college No, it's not. No, it's not. You think about that last call, that young couple, of course, they're miserable, you know, living with a set of parents or in one case, a set of in-laws. And so what happens is we go from, we don't want this part of our life. So then we go, what do we really want? And we skip the whole, what do we actually need? And what they needed to do was look for a one-bedroom apartment over some old lady's garage that they could get for an absolute, I mean, next to nothing for the transitionary period. That's all a young couple needs.

I know when I was born, my mom and dad were living in a one-bedroom apartment above a drugstore, and that's all they had. And I was okay. You know, I'm messed up for completely different reasons, but not that one. Yeah. You know. And I just think that there needs to be this exercise on what do we need? What we need is four walls and a roof, and it's okay to rent.

And that's the crux of what you're talking about. Everybody wants the house, and so we suspend logic. because of desire. Well, I mean, it is a, everybody, it makes fun of the baby boomers and, oh, you, you bought your house for a basket of strawberries or whatever. Yeah. And George loves saying that. He dropped that one on me the other day.

That's great. But, but, but the truth is, what we've done is we've adjusted the house. Yeah. The typical home in America today is two to three thousand square feet. So when my parents moved to Nashville in 1963, they bought a 1,000 square foot, one and a half bath, which means there was a half bathroom in the master. The doors were holocaure. I don't even know if you know what that is.

I don't. What is it? These doors that are almost like paper mache. Like in a movie, when they bust through the door, it's so thin, it's a couple of tiny pieces of wood. with some other stuff. That's kind of what they were. And so, you know, there was zero privacy in this house. Yeah, right.

You could hear is a tiny little house to start with. And I spent the first 16 years of my life in a 1,000 square foot home, one and a half baths, three bedrooms. And the bedrooms, I mean, you can put most of the house in this studio right here. Yeah. And, but if you ask somebody to move into that today, oh, well. No. You can't even find that today. Nobody even makes it. I mean, it's just a half-notch above a tiny house. Yeah. You know? And I'm not suggesting tiny houses. Don't get confused. Oh, my gosh.

Folks, let's just calm down a little bit here and live within our means. It's a new concept. I've made it popular again. Hey, guys, thanks for listening to Real Estate the Ramsey Way. 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, handpicked 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. Chris is going to kick us off in Lima, Ohio. What's going on, Chris? Hey, gentlemen. Good to talk to you. So quick question, please.

Speaking with another financial advisor, I got some. input, and I want to know why is it better in your point of view to pay off my mortgage early with extra principal payments when the projected interest savings by doing that is significantly less than the projected interest gain of investing those extra payments. I wish we were all robots and math and is all that mattered, Chris. I really do, because this would be a much easier answer. And I don't think you're going to like my answer, and I don't think you're going to pay off your mortgage early.

But hey, can we just say... Let's walk through it. all things told, if everything works out perfectly, you are correct. And hopefully that, like... If you never have a job loss, you never have a divorce, everything works out great. And the markets continue to soar. That's right. And everything is perfectly stable in the financial markets these days.

And with everyone's all in on the same leadership. So we're going to just go with that because everyone's pretty comfortable right now with everything, right? So assuming all that works out right, you actually are correct. The math works in your favor. And that's where I, at least me personally, and I don't know, Georgia's too, we're playing a totally different game. The game is, I want to be at a place where nobody, no government, no people, no bank, no mortgage company. Nobody can take away me and my family's home. Sure.

And so I'm solving for peace. I'm not solving for maximum ROI on every penny in my life. There is places where I try to solve for maximum ROI. Having a house that nobody can take away from me, I personally believe there's a neurological connection to safety. If your body knows they can take away your house, if you lose your job, if you lose anything for any reason in this world

where you can get canceled overnight for something you post, if you go to the wrong Coldplay concert, your life is over, right? Like whatever's happening, there's so many outside factors that can take your life away from you. Your brain would be failing you if it let you sleep at night. And so as for me in my house, we opted out of that ROI game on that particular math problem and said, I want to solve for peace.

And so when I was paying my mortgage off, I paid probably a 3% sleep tax. And it was worth every single penny. Okay. That makes sense. Can I have one more question? Do you have time? And I talked over George. George, what do you think?

Yeah, I asked your question. I want to hear your numbers to kind of get a lay of the land here. Yeah, I can give my numbers. My other question quickly was just when I get to that point of the 15% investment in retirement, does that include employer match or is that just my contribution? That's regardless of employer match. So you do 15% of your own money and whether the employer match is 0% or 10% doesn't change that you've invested 15% of your income. Okay, perfect. Can I ask you a question back, brother?

Yeah, you can, sure. Was that your question or was that your financial advisor's question? Yeah, you called me. I want to do it the Ramsey way, and they're fighting me with numbers saying, well, you realize you're giving up all of this gained interest. Their whole job is to get you to invest. That's it. That's their entire job. They're not looking holistically at how you sleep at night.

What's going on in your marriage? And so that's where I think it's a, it's sort of a, it's a question and a vacuum. Mm-hmm. Well, it's not, it's, I don't think it's a fiduciary responsibility to their firm to make as much money as possible. and they probably have some sort of commission triggers on how much money they can get in the door. So, yes, they have a vested interest in telling you you're stupid. Because what you're saying is, hey, I'm going to liquidate my portfolio with my advisor in order to pay off my mortgage, which means he just got a pay cut. Think about that.

And I paid you guys nothing today, right, as you said in the intro. We get no kickback for telling you to pay off your mortgage or to invest. So I want to tell you that we are unbiased in that regard, other than wanting you to be free. I'm biased in this way. I'll tell you where I have a bias. I have a bias in looking around at our world and our culture, and everybody's insane. And I will tell you that when I call George on a Saturday morning, when I'm trying to work out a math problem, George gives me an answer, and he's not insane. He's insane about other things.

That's true. But like, there is a level of peace that I have a bias towards that I wish everyone in this culture would lean towards being people of peace, not people of, dude how do we snap into a slim gym and maximize our because that's making everybody insane and that's the world my children are inheriting and I'm sick of it man and so i'm saying right now bro get another financial advisor go to ramesysolutions.com and you can click on ramsie trusted and find somebody who will say hey i want to do not what's best for me at your expense but i realize I'll make more money as a business, as a financial advisor over time if you stay with me and you'll stay with me if I do what's best for you and your family. Okay.

That'd be my recommendation. Can I hear your numbers, Chris? Yeah, go ahead. Yep. I have a loan balance of 183K. Okay. And if I paid, I was throwing out $700 extra a month. My savings and interest is about $71,000.

and if I were to invest that $700 a month, just assuming it the interest rate is the same as my house, which is $4.5.5. And I have no other investment, which I do. But assuming it, I'm starting at zero, the growth is $196K. But you're misunderstanding how interest is calculated on that mortgage. It's essentially front-loaded. And so if you go to see how much you're actually paying an interest this month, you will be baffled to go, oh, my God. I didn't make that in my savings account. Right.

even with the same amount of money in there. And so it's not apples to apples, number one. Number two, we're also assuming that you're not doing any investing while paying off your mortgage, which is something we've never said to do. We've said it always, invest 15% before you put an extra dime on the mortgage, which means how old are you, Chris? 32. You're 32 years old, so let's forecast this out.

What is your principal and interest on your mortgage today? It is five, I think it's like five, no, it's like $9.55. Okay, so about $1,000 right now is what you would free up if you paid off your mortgage early, which then you have the ability to invest for the rest of your life. That's the other part of your calculation that you're missing, is if you pay your house off in three years or four years, then you've got $1,000 a month, month over month, over month, for time eternal. So the real question is, here's the thing, you're going to be a multimillionaire just the way you've been talking.

Now, will you have $5 million or $5.5 million because you did or didn't pay off your mortgage early? That's really what we're talking about here. Sure. So that's the optimization part, but the fact that you've burned this many brain calories on it tells me it's just pay it off. You know how many times I've thought about my mortgage interest rate of 0%? None, none at all. It has freed up my brain space to focus on what really matters. and that's the part that's hard to explain in a radio call.

Sure. Is the brain space it frees up to not even think about monitoring one more account and arbitraging and making sure that my investments and savings are doing better than my mortgage savings are. And you have to stay glued to the next thing that the president tweets out or that the markets are doing or that what's the tariff in this? Like you have to stay glued to that because you have to make that spread. Versus, I don't know, I don't have a mortgage. I like to control the controllables and I like to control the knowns. And I know what my interest rate is.

I know I can pay it off. And that's something I can control. I don't know what the markets are going to do. I don't know if I'll have a job forever to be able to pay the mortgage. And so that's why I decided to pay off mine early. I hope to do the same, Chris. We're not trying to beat you down. We're having a fun conversation.

But we are rooting for you to solve for freedom, my friend.