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Dave Ramsey's Affordability Rule:
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Dave Ramsey's rule suggests that your mortgage payment should not exceed 25% of your take-home pay. This calculator helps determine the maximum home price you can afford based on this principle.
The calculator uses the simple formula:
Where:
Explanation: This calculation assumes a 25% mortgage payment ratio of your income, which is Dave Ramsey's recommended maximum.
Details: Following this rule helps ensure you don't become "house poor" and maintains financial stability by keeping housing costs manageable relative to your income.
Tips: Enter your annual take-home income (after taxes) in dollars. The calculator will show the maximum home price you should consider based on Dave Ramsey's 25% rule.
Q1: Why 25% of income for housing?
A: This conservative approach ensures you have enough left for other expenses, savings, and emergencies while avoiding being house poor.
Q2: Does this include property taxes and insurance?
A: The 25% rule should include principal, interest, taxes, and insurance (PITI). This calculator gives a general estimate - adjust for your specific tax and insurance rates.
Q3: What if I have other debt?
A: Dave Ramsey recommends being debt-free before buying a home. If you have debt, you may need to spend less than 25% on housing.
Q4: Is this for gross or net income?
A: This should be based on your take-home pay (after taxes), not gross income.
Q5: How does this work with different mortgage terms?
A: The calculation assumes a 15-year fixed-rate mortgage. For a 30-year mortgage, you might need to adjust downward to account for higher interest costs.