Now however, we are looking to purchasing again and the dilemma I’m finding is that we could spend about 34% (income before tax) which would include PMI, Ins, HOA … every but basic utilities -Which we’d pay no matter where we live- on an excellent home on a nice golf course, pool, city view, etc.

-Or- we could pay significantly less than the 34% (as explained above) on more of a very basic home. I’m concerned that a very basic home (getting us closer to 25% or less) would be much more difficult to sell in future years because it seems so much less desirable. Granted it would be much cheaper and probably free up a lot of cash flow.

It just seems like the 34% home is a real gem whereas the basic homes would be much more inexpensive but … well it just seems as though the house with the pool on the course is tremendously marketable whereas any of the basic homes would look like just another home on the market if I want to sell in a few years.

Any thoughts?

Personally, I’d like to stick to Dave’s rule. I know there are some markets where this may not be possible, but in the midwest, even with a $20k/yr job, you could get a house for this much. Yes it would be a very small house probably not in your first choice neighborhood. Yes, you’d have to shop around a lot to find it. But yes, it is doable. I don’t buy the “It’s not possible” line. We don’t NEED huge houses with 1+ rooms per person. What we NEED is a place that will protect us from the elements where we can lay our heads, cook food, and stay healthy (hygiene). There are many MANY cultures around the world that do just fine with much less than what Dave talks about. I’m not saying we should turn into a third-world country, but I certainly think we as Americans have gotten way out of control in what we spend on shelter… as if a larger house will somehow make us happier and get rid of our problems.

For example, if someone who “shouldn’t” buy a home (according to Dave’s Rules) never buys a home, in the long run they could be worse off due to (1) never building any home equity, and (2) paying ever-rising rents, thus hindering their ability to save and invest.

Dave says that renting often makes sense in the short term, but isn’t a good long-term housing strategy. But Dave’s Rules set up many people to fail financially in the long run.

I can, however, imagine Dave Ramsey’s rebuttal: “Then move somewhere else!” Obviously that’s not the answer.

His recommendation of 25 percent of take-home income is extremely conservative and, for most, probably the floor of what they would consider spending. My hope was simply to point out that going from his advice to lenders’ criteria—35 percent of gross income—is a big, big leap!!

There’s some risk involved in almost any financial decision and there’s obviously risk involved in home ownership. But similarly, sitting on the sidelines for forever because you need to wait until you’re making two hundred grand to be able to afford a starter condo just isn’t realistic. In and around cities like San Francisco, Boston, or New York, you pretty much need to stretch to the very top of your range to afford much of anything unless you make well, well into six figures.