7 “Dave Ramsey Approved” Home Buying Tips
If you’re thinking of buying a home, you need to make sure you’re financially ready to make such a large commitment. The purchase of a home means that you’ll be promising to pay a lender for decades to come. You’ll also be committing to other ongoing expenses, including property taxes, maintenance, and insurance costs.
Before you take this huge leap and change your financial life forever, personal finance expert Dave Ramsey, believes there are seven key steps you need to complete first. Here’s what they are…
1. Pay off your debt and build up a healthy emergency fund
Dave Ramsey urges would-be home buyers to focus on knocking out your debt “as fast as possible” before you commit to buying a property. Getting rid of other debt payments prior to becoming a homeowner, you’ll be better able to save for a down payment and will have more flexibility in your budget.
An emergency fund is extremely important, even if saving for one means putting off homeownership. You don’t want to jeopardize your ability to pay for or maintain your home after purchasing it. There will be unexpected expenses that come up and you need to be financially prepared for them ahead of time.
2. Make sure you can afford your monthly mortgage costs and maintenance expenses
Ramsey warns that your mortgage payment isn’t the only expense you’ll need to cover when you become a homeowner. You’ll also need to pay for home owners insurance, private mortgage insurance if you didn’t make a 20% down payment, HOA fees (potentially), and ongoing maintenance for the home.
Having an emergency fund can help you cover some of these maintenance costs if things break. But you don’t want to constantly raid your emergency fund every time there’s an appliance issue.
Instead, it’s best to start a special home repair fund you can use to cover these costs. Assume you’ll need to save around 1% of your home’s value per year for maintenance, so you are ready even for big expenses that come up.
3. Save up a hefty down payment
Dave Ramsey says the best way to purchase a home is to pay cash for 100% of it. But this is unrealistic for most people, however he is right that you should aim for a down payment of at least 20%. Doing so ensures you have plenty of equity in the home so you don’t end up owing more than it’s worth. It also allows you to avoid the added costs of paying for mortgage insurance, which is really just there to protect your lender.
4. Save enough money to cover closing costs
Ramsey points out that closing costs can be expensive, totaling as much as 4% of your home’s purchase price under some circumstances. If you don’t have the money to cover these outright, you’ll have to borrow for them. That would mean paying more on your monthly mortgage payments and interest payments for the life of the loan.
5. Make sure you’re prepared for moving expenses
Dave Ramsey also urges home buyers to prepare for another big upfront expense: moving costs. Moving expenses can add up to thousands of dollars, and he advises getting estimates up front for what the total costs will be to make sure you’re ready to cover them. You’ll want to save up enough to make sure things go smoothly with your move.
6. Think about your future plans to ensure you won’t have to move for a while
It takes time for you to make back the money you spend on upfront fees when purchasing a home. As a result, Ramsey rightly urges that you wait to buy a home until you’re sure you’ll be in it for more than a few years.
Data shows that the longer you stay put in your home, the more equity you earn (equity is how much your home is worth, minus how much debt you owe on it). Sure, it’s obvious you’ll gain more equity by paying down your mortgage. But the other portion of equity is gained by rising property value.
So if you only plan on staying in your city for another year or so, now might not be the best time to buy a house—all the up-front costs and work you’d put into getting a house probably won’t be worth the small amount of value you’d gain by living in it for a short amount of time. But if you love your city and plan to stay put for at least several years, buying a house is a great investment!
7. Find a trusted real estate agent
It’s not easy to find a house you love that’s also within your budget—that’s why nearly 90% of all home buyers work with agents who eat, sleep and breathe real estate to purchase their home. Plus, having a buyer’s agent by your side brings two big benefits:
- Save money. In most cases, the home seller pays the commission for your agent—so you pay nothing to get expert help! Even better, a buyer’s agent can save you thousands of dollars on your dream home by fighting for your best interests at the negotiation table.
- Save time. Without a buyer’s agent, you’ll have piles of paperwork to wade through. Life’s too busy for that! Let an expert who knows all of the laws and regulations specific to your city take care of the red tape for you.
So, if you truly feel you are ready to buy a house, contact me today. I am a Dave Ramsey Endorsed Local Providers (ELP). I have a great deal of experience helping buyers like you get the home of their dreams.