Killer House Payment!
by Dave Ramsey
| I’m about to get a settlement of $35,000 from an auto accident. Do you think we should use it to pay down our mortgage, or save it, sell the house and try to find something cheaper? |
Dear Dave,
I’m about to get a settlement of $35,000 from an auto accident. Do you think we should use it to pay down our mortgage, or save it, sell the house and try to find something cheaper? Together, we bring home about $3,200 a month, and our monthly mortgage payment is $2,400. We also have about $5,000 in credit card debt, plus medical bills from the wreck.
Sherry
Dear Sherry,
I don’t say this often, but you’ve got to get that house sold. And I mean today! You’ve got 75 percent of your take home pay wrapped up in a mortgage payment, and it’s eating you alive!
Your house payment should be no more than a fourth of your take home pay on a 15-year fixed-rate mortgage. And with what you guys bring in, that means your house payment should be around $800 a month – not $2,400.
If I’m in your situation, Sherry, I’m selling the house and finding a decent, inexpensive apartment to live in for a couple of years while I get my finances stabilized. Start on the Baby Steps, and get $1,000 in the bank as fast as you can for an emergency fund. After that, attack your debt using the debt snowball and pay them off from smallest to largest.
After you do all this you might be ready to think about owning a home again. I know you’ve been through some hard times with the car wreck and all, but you guys really need to practice being conservative right now so things don’t get out of hand again!
Dave
Posted by Linda
from Chicago
Perhaps Dave has more info on this than what is posted but it doesn't say how much equity this couple has in their home or how long they have lived there. If they have enough equity in their home it may be more advantageous for them to purchase a less expensive home rather than move into an apartment. If they have a decent amount of equity and they sit on it too long, unless the laws have changed, they could end up paying capital gains taxes.
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Posted by Capri
from Coeur d Alene, IDAHO
We are also in this type of circumstance. My husband (who works commission) had a very extensive, long recovery operation. I tried to bring home some money while still being an at home mom. I lost thousands and thousands of dollars instead. We are maxed out on several Credit Cards. Dave suggest that their payment should be around $800 for $3,200 a month take home. Where in this whole nation do you find a house with an $800 a month mortgage? Even if you saved for years and years to get a $50,000 down payment, you still wouldn't get a home big enough for a family to live in. Where we live the rent is higher than that. And the median price for a home is $250,00 - $300,00. If I sell my house, I will never be able to afford another at even half of the size I have and at the $1,900 I pay in Mortgage each month. I am puzzeled...
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Posted by Dilip
from India
The advise given here by Dave was very basic. I hundred percent agree here since good chunk of take home income is used for mortgage payment. Sell the house, payoff the mortgage and have some safety net.
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Posted by Charlotte
from Utah
I appreciate your comment about how house payments shouldn't be any more the 25% of a family's income, but where is a family to find a home in which the payments would be so low?
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Posted by Pate
from North-Eastern Colorado
I think the advice you gave was sound about selling because they are in over their heads on their mortgage payment, but you may want to add a little more advice about the capital gains tax consequences of selling a house prior to retirement and keeping the equity for over 18 months....unless I'm out-of-touch and laws have changed, won't they loose up to 50% of their equity in Capital Gains Taxes?
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