Mortgage payment is way out of line

By Dave Ramsey

Published: May 19, 2008

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 should we 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 one-fourth of your take-home pay on a 15-year fixed-rate mortgage. And with what you two bring in, that means your house payment should be about $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 taking what I call 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, paying 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 two really need to practice being conservative now so things don't get out of hand again!

DEAR DAVE • I went through a divorce about six years ago. Recently, I remarried. When we went to apply for a home loan, my TransUnion credit report said that I was deceased. What should I do to let these people know I'm not dead?

Stacy

DEAR STACY • This is too much! But I think we can revive you.

Write a letter to TransUnion — certified mail, return receipt requested — advising them that according to the federal Fair Credit Reporting Act, you're challenging the accuracy of the credit bureau report listing you as deceased.

They're usually pretty good about clearing up these kinds of things. But the reason for sending a certified letter is there will be proof of the letter being delivered. At that point, the fuse has been lighted, and by law, they've got 30 days to fix the problem.

Good luck, Stacy!

DEAR DAVE • I was wondering if you think we can afford to buy a lake house. The house we're considering costs $1 million. I bring home about $15,000 a month, and we have no debt. I started saving and investing when I was 18, and my wife and I have about $4 million sitting in our savings account. Even though we both love the water, part of me thinks we should just rent one for a few weeks a year.

Mike

DEAR MIKE • Dude, you are a classic! You have done an absolutely phenomenal job with your money!

Generally speaking, lakefront property is a great investment. Plus, if you buy instead of rent, it's your investment, and you get to leave your clothes in the closet!

If I'm you, I'm buying that house before the week is up! I own a lake house, and I can tell you it's one of the best investments I've ever made — money-wise and relaxation-wise. Do the deal, Mike. You two have earned it!

E-mail questions for Dave Ramsey to davesays@daveramsey.com. For more financial advice, go online to www.davesays.org or call (888) 227-3223.

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