What it takes to afford a home in the U.S., according to Dave Ramsey
Dave Ramsey joins TheStreet to discuss what it takes nowadays to afford a home in the U.S.
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00:00What is your rule of thumb in terms of a down payment amount?
00:05What's the realistic savings goal that people should be targeting?
00:10Well, if you're a first-time homebuyer, you know, you need to put down 5 or 10%.
00:15Maybe 20-20 would be great, but it's a lot tougher when you're a first-time homebuyer to do that.
00:2120 would be great because you avoid PMI, private mortgage insurance,
00:25which is about $75 per month per 100,000 borrowed.
00:29So you buy a $400,000 house, we're talking about $300 a month just for PMI.
00:36And so you avoid that with a 20% down payment.
00:39So that's best. 100% down is best.
00:43But again, first-timers, we 5%, 10%, whatever,
00:48and make sure you're out of debt on everything else so that you can afford the house then.
00:52So I know you are a tough-love kind of guy.
00:56When we're thinking about coming up with this deposit,
01:00many people are trying to figure out, how am I going to do it?
01:03So what is your advice to people of all generations on how to save
01:10in order to come up with the money that they need to make that deposit?
01:15The average car payment in America today is almost $700 a month.
01:21There's $1.7 trillion in student loan debt.
01:25There's over $1 trillion in credit card debt.
01:29No wonder they can't save.
01:32If you have a $700 car payment and a $400 student loan payment,
01:37and you're living from credit card to credit card to credit card,
01:40and you're running another $300 or $400 out on that in an average household income,
01:45you can't breathe.
01:46Oh, let's have two cars.
01:48Let's go ahead and kick that to almost $2,000 a month just for car payments.
01:54So what we teach folks is if you get out of debt
01:57and you buy a car that you can actually pay cash for,
02:00and you cut up your credit cards and you live on actual debit cards, actual cash,
02:05and you don't spend more than you make,
02:07quit acting like you're a freaking congressman.
02:10My gosh, live on less than you make.
02:12When you get the debt cleaned up in the average household,
02:15now there's disposable income mathematically.
02:17But they're giving it all to car companies, credit card companies, and Sallie Mae.
02:22And so of course you can't save in that situation.
02:24You're giving away your most powerful wealth-building tool, which is your income.
02:28So that's why we've ended up, in the name of wealth creation,
02:32in the name of prosperity,
02:34have ended up becoming the no-debt guys over at Ramsey.
02:39So are you saying that Americans are driving too much car?
02:44Oh, definitely.
02:45And that's the problem, why they can't save for their house?
02:48100%. Definitely.
02:50They're driving cars they can't afford, for sure.
02:52And they're going to schools they can't afford.
02:56In the name of, if I go to that school, I'll be successful,
02:59versus a school I could actually pay cash for,
03:01and mom and dad could have helped me work my way through,
03:03but instead I got $140,000 in student loans
03:06because I went to a famous college
03:09and got basically the same education.
03:12And so yeah, definitely.
03:13We're buying things we can't afford with money we don't have
03:15to impress people we don't really like,
03:17and then the payments are stealing our ability to save and invest.