How to Use the Ramsey Mortgage Calculator
The Ramsey mortgage calculator is designed to help you follow Dave Ramsey's "Baby Steps" for home ownership. Unlike standard calculators that may allow you to borrow up to 40% or 50% of your gross income, this tool focuses on the strict 25% take-home pay rule on a 15-year fixed-rate mortgage.
To use this calculator, simply enter your financial details to see if a specific home fits within the Ramsey guidelines for financial peace.
- Home Price
- The total purchase price of the property you are looking to buy.
- Down Payment
- Dave Ramsey recommends at least a 10% down payment, though 20% is preferred to avoid Private Mortgage Insurance (PMI).
- Monthly Take-Home Pay
- This is your net income after taxes, not your gross salary. The Ramsey rule applies specifically to what actually hits your bank account.
- Monthly Tax/Insurance
- The "PITI" (Principal, Interest, Taxes, and Insurance) must all fit within the 25% limit.
The Ramsey 25% Rule Explained
Dave Ramsey's philosophy on home buying is conservative to ensure you have enough cash flow to complete the Baby Steps (like investing for retirement and saving for college). The math behind the Ramsey mortgage calculator follows these three non-negotiables:
Max Payment = Monthly Take-Home Pay × 0.25
- 15-Year Fixed-Rate: Never take a 30-year mortgage. You pay significantly more in interest, and it keeps you in debt far longer.
- 25% of Take-Home: Your total monthly payment—including principal, interest, taxes, insurance, and HOA fees—should be no more than 25% of your net monthly pay.
- Debt-Free First: You should be on Baby Step 3 (fully funded emergency fund) and have zero consumer debt before buying.
Calculation Example
Example: A couple earns a combined take-home pay of $7,000 per month. They want to buy a $350,000 home with a $70,000 down payment (20%).
Step-by-step solution:
- Loan Amount: $350,000 – $70,000 = $280,000.
- Interest Rate: 6.5% on a 15-year term.
- Monthly P&I: Using the amortization formula, the monthly principal and interest is approximately $2,439.
- Taxes/Insurance: Estimated at $350/month. Total Payment = $2,789.
- Ramsey Limit: $7,000 × 25% = $1,750.
- Result: $2,789 is 39.8% of take-home pay. This home is "House Poor" by Ramsey standards and would not be recommended.
Common Questions
Why only a 15-year mortgage?
A 15-year mortgage saves you tens, often hundreds, of thousands of dollars in interest compared to a 30-year mortgage. It also forces you to build equity twice as fast, helping you reach the ultimate goal: a 100% paid-for home.
Is the 25% based on gross or net income?
It is based on net income (take-home pay). Most banks use gross income because they want you to take out the largest loan possible. Ramsey uses net income so you actually have money left over for food, gas, and life.
What if I can't find a home for 25% of my pay?
If you can't find a home that fits the 25% rule, Dave Ramsey recommends three things: save a larger down payment, find a cheaper home (even if it means moving further out), or increase your income. Buying a home that costs more than 25% of your pay makes you "house poor," where all your money goes to the mortgage and you can't build wealth.