The best annual-income / house-price equation

Dear Dave,

Based on your annual income, how do you determine how much house you can afford?

Ryan

Dear Ryan,

I always tell folks never get a home loan where the monthly payment is more than a fourth of your take home pay. I'm talking about basing this on a 15-year, fixed-rate mortgage. Twenty-five percent of your monthly take home pay is the absolute most you should have going out the door toward a mortgage payment.

I realize that's a pretty conservative number in most people's minds. You can actually, technically qualify for almost twice that figure. But I think having that much of your paycheck going toward house payments is pretty dumb. Your shortest, quickest path to wealth is being debt-free. And when most of your money isn't flying out the door to make payments on stuff, it's easy to build wealth and increase your level of generosity!

-Dave

Dave Ramsey is America's trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover,EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 6 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.