CAN YOU AFFORD IT? (House Edition!)

TL;DR

This video discusses the traditional model and Dave Ramsey's conservative approach to determining whether you can afford a house based on your income, mortgage term, and housing payment.

Transcript

so today we're going to be talking about whether or not you can afford a house that you are looking at or maybe unfortunately you're in a situation where you're already in a horse in a house oh my god I might be leaving that in there now I just want you guys to know I just wanted to share an update with you guys I'm going to be doing a really massi... Read More

Key Insights

• 🚕 The traditional model suggests a housing payment of 35% of pre-tax income, while Dave Ramsey's model recommends 25% of post-tax income.
• ✋ Monthly payments for a 15-year mortgage are significantly higher than for a 30-year mortgage due to the shorter term.
• 👻 Affordability can vary depending on income, with the traditional model allowing for a higher payment.
• 😘 Dave Ramsey's conservative approach prioritizes a shorter mortgage term and a lower housing payment, which can lead to more financial freedom.
• 🏘️ Balancing risk tolerance and comfort is essential in determining the amount of house one can afford.
• 🏘️ Buying more house than one can afford can lead to financial strain and being "house broke."
• 🏘️ Following the Dave Ramsey model may result in a more modest house, depending on the area and housing market.

Questions & Answers

Q: What is the traditional model for determining how much house you can afford?

According to the traditional model, your housing payment should be 35% of your pre-tax income, which includes expenses like insurance and taxes.

Q: How does Dave Ramsey's approach differ from the traditional model?

Dave Ramsey recommends a 15-year mortgage and a housing payment of 25% of your post-tax income, which is more conservative than the traditional model.

Q: How do the monthly payments differ between a 30-year and 15-year mortgage?

Using a $100,000 mortgage as an example, the monthly payment for a 30-year mortgage would be $477, while the payment for a 15-year mortgage would be $740.

Q: How does income affect the affordability of a house?

According to the traditional model, you would need a pre-tax income of $16,500 to afford a housing payment of $477. In contrast, the Dave Ramsey model suggests a post-tax income of $35,520 for a $740 housing payment.

Summary & Key Takeaways

• The traditional model suggests that you can afford a house if your housing payment is 35% of your pre-tax income, including expenses like insurance and taxes.

• Dave Ramsey's conservative approach recommends a 15-year mortgage and a housing payment of 25% of your post-tax income.

• Using a $100,000 mortgage as an example, the monthly payment for a 30-year mortgage would be $477, while the payment for a 15-year mortgage would be $740.

• According to the traditional model, one would need a pre-tax income of $16,500 to afford the $477 payment, while the Dave Ramsey model suggests a post-tax income of $35,520 for the $740 payment.