Dodge These 9 Critical Mortgage Blunders That Dave Ramsey Warns About

When you’re taking out a mortgage to purchase a home, you’re making one of the most significant financial commitments of your life. The decisions you make today will reverberate through decades of your financial future. Finance authority Dave Ramsey has identified nine pivotal mistakes that borrowers frequently fall into. Understanding these pitfalls puts you in a stronger position to secure financing that truly works for your situation.

The Affordability Trap: Overextending Your Budget

Your first and most dangerous error is borrowing beyond what you can reasonably handle. As Ramsey bluntly puts it, taking on excessive mortgage debt is like “dropping an atomic bomb on your budget.” When you stretch too thin to cover monthly payments, other financial obligations suffer—utility bills go unpaid, emergency savings drain away, and long-term goals evaporate.

Ramsey’s guidance on this is specific: keep your total housing expenses—mortgage payment, property taxes, and home insurance combined—at or below 25% of your gross take-home income. This buffer protects you when life throws unexpected curveballs.

Down Payment Decisions That Cost You Later

Skimping on your down payment creates a cascade of problems. A minimal down payment leaves you vulnerable to owing more than your property is worth and saddles you with higher overall borrowing costs. Ramsey sets a clear floor: put down at least 10%, though he strongly advocates for 20% when feasible. This threshold gives you equity cushion and reduces lender risk, which translates to better loan terms for you.

The Closing Costs Surprise

Many buyers get tunnel vision around accumulating down payment funds and completely overlook other essential expenses waiting at the finish line. Closing costs, moving expenses, and inspection fees catch people off-guard. Without planning for these outlays, you’ll either raid emergency reserves, take on additional borrowing, or derail your home purchase at the final moment.

Why Pre-Approval Isn’t Optional

Before you start house hunting, obtain a mortgage pre-approval letter. This document proves to sellers that you’re a serious, qualified buyer and accelerates the entire transaction timeline. Ramsey treats this as non-negotiable—it’s your credential that separates casual browsers from committed purchasers.

Loan Type Selection: Avoiding Designer Debt Products

The mortgage marketplace offers numerous options: adjustable-rate mortgages, FHA loans, VA loans, and USDA programs. Many of these are architected, in Ramsey’s view, to qualify marginal borrowers regardless of their actual financial capacity. His prescription is straightforward: opt for a conventional 15-year fixed-rate mortgage instead. This eliminates interest rate uncertainty and builds equity aggressively, though it does require higher monthly payments compared to 30-year alternatives.

The Cosigner Trap

If you need someone to cosign your mortgage, that’s a red flag signaling you can’t truly afford this home independently. Ramsey warns that proceeding down this path often leads to payment strain. You’re not just risking your financial health—you’re potentially dragging a co-signer into your struggle too.

Mortgage Points: An Expensive Illusion

Mortgage points let you pay down interest in advance by spending a percentage of your loan upfront. Ramsey advises steering clear because most borrowers refinance, relocate, or repay before recouping that initial expense. A smarter move: take those extra funds and boost your down payment instead, reducing the principal you need to borrow.

The Final Mistake: Adding Debt During Closing

Don’t take on new credit while your mortgage is in closing. Lenders view this as a major red flag and it can torpedo your deal. Keep your credit profile frozen until you’ve officially closed.

By sidestepping these nine pitfalls, you dramatically improve your odds of landing a mortgage that aligns with your financial reality rather than stretching it to the breaking point.