1/30/2006

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"How much house can we afford?"

Dear Dave,

I just got married about a year ago, and now we’re looking into buying our first home sometime in the next few months. We’re both 23-years old, and combined we bring home about $4,000 a month. We have no debt, and we’re saving up to make a 20 percent down payment. Is there a way to calculate how much house you can actually afford?

Chad

Dear Chad,

Well, a bank will let you qualify for anywhere from 50 to 100 percent more than you should buy. After years of financial counseling, we’ve found that you don’t want a house payment that’s more than one-fourth of your take-home pay. That way, you’ve got the money to save for retirement, for your emergency fund and the kids that might come along somewhere down the road.

In your case, you’d be looking at a house payment of about $1,000 a month. Calculate that on a 15-year, fixed-rate loan at about 6.5 percent interest, and you qualify for a loan of about $115,000. Chad, that amount will get you guys a wonderful first home. And think about this; you’d own that $100,000 home outright when you’re still in your 30s. How great is that?

- Dave

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