Here's How Much Dave Ramsey Thinks Homeowners Can Afford to Spend on Their Mortgage Costs

Ending up house poor could be a bad financial move.

No homeowner ever wants to miss a mortgage payment, or struggle each month to send their payment to the bank. Unfortunately, far too many Americans face the constant stress associated with worrying about how they'll pay their home loan. This can happen to those who are house poor, or who spend too much of their monthly income on their mortgage costs.

When you're buying a house, you'll want to make sure you keep your mortgage payments low enough that you don't find yourself in this unpleasant situation. If you aren't sure exactly how much of your income you should use to pay for housing costs, personal finance guru Dave Ramsey has some advice that could help you decide.

Dave Ramsey has this advice for homeowners on their mortgage payments

On his blog, Dave Ramsey stressed the importance of calculating how much you can comfortably pay for your home before you decide how large a mortgage to take out.

Ramseys' blog advises would-be home buyers that they should typically keep their total monthly payments below 25% of monthly take-home pay. This includes payments for:

• Mortgage principal
• Mortgage interest
• Property taxes
• Insurance
• Private mortgage insurance if you make a small down payment
• HOA fees

Ramsey suggests setting this 25% limit for a simple reason. By keeping your housing costs to a quarter of your pay, you won't end up house poor and spend too much of your paycheck on your property. You will have plenty of money left over for other things, which can include accomplishing other financial goals such as investing for retirement and saving for home maintenance or big purchases.

Is Dave Ramsey right?

Ramsey is a bit more conservative than many financial experts when he suggests keeping your total housing costs to 25% of your budget. Generally, most people are told it's a good idea to keep their housing costs below 30% of their budget. And many mortgage lenders ideally want home buyers to keep their total housing costs below 28% of income.

However, there's nothing wrong with being extra cautious in not devoting too much of your monthly budget to your house. While your property is technically an asset that helps you build wealth, it's not a liquid asset you can sell easily, and it can be difficult to access the equity in your home if you need money. The return on investment from homeownership is also likely to be below the return you'd get if you purchased other types of assets.

As a result, you want to make sure you have plenty of money left over for other things. And because foreclosure can destroy your finances for a long time, you don't ever want to commit to a home you aren't sure you can afford. If you keep your housing costs below 25% of take-home pay, you increase the amount you can save and invest while also reducing the likelihood you'll run into repayment troubles even if your income temporarily falls.

Ultimately, you'll need to carefully consider what's best for you -- but always think about how your housing costs will fit into the big picture when you make your choice.