Dave Ramsey

If you haven’t heard of self-proclaimed financial guru Dave Ramsey, here is a quick overview of his teachings: debt is bad, credit cards are awful, loans are evil and when it comes to buying a house don’t even think about it until you have twenty-percent down. Why does he love the magical number of 20%? Private Mortgage Insurance, known as “PMI”.

PMI is a monthly insurance fee that your bank tacks on to conventional loans for those who don’t have 20% down. Paying this extra fee does nothing toward paying off your mortgage, it is a protection to your bank for carrying your loan. In essence, it's money that you pay on top of your mortgage that goes to your bank, not your house payment. This sounds evil, right?

Now that you are on board with Dave Ramsey’s teachings of saving your money for the next ten years to get 20% down, you scoff at your friend who just bought a house with only 5% down. What a dummy, who would pay PMI?!

Today, it’s ten years down the road and now you have your 20% for your down payment. You’ve been renting that apartment, not using credit cards, driving a rundown car, and saving those pennies for this moment. Things are about to turn around for your hustle. Your Realtor sets you up with a preferred lender to see how much house you can buy. 

Before we go to your lender meeting, let’s look at your friend who bought her house ten years ago for $250,000 with only five percent down. Her PMI was $127 a month, she refinanced her house 7 years ago and her bank dropped PMI. Today, her house is worth $450,000, she has about $200,000 worth of equity in her home with a good credit history by paying her mortgage.

Now, you’re sitting across the table from your lender, he looks at you puzzled and says, “I don’t see you have a credit score?” and you say back, “Is that bad?”. 

It turns out that all of this saving just cost you everything. 

Thanks for the advice, Dave.