The Best Way to Buy a House Dave Ramsey

9 Min Read | Sep 24, 2021

And so yous're asking yourself, Am I fix to buy a house? That's a smart question to inquire before making one of the largest financial decisions of your life. You've dreamed of owning a home for as long as yous can think. Simply lately, your dream's been more like a driving force than a twinkling in the eye.

Perhaps your friends are all ownership homes and pressuring you lot to do the same. Or maybe your rent just went upwards again. Whatever the case, you simply can't expect another year to buy.

There'southward just one problem: Median dwelling prices take reached the $300,000 range and you're not sure you're ready to accept on a purchase that large, not to mention all the responsibilities that come with homeownership.^ane

And so how exercise you lot know you actually are gear up to get the ball rolling on ownership a firm? This handy checklist is a good place to first.

You're Ready to Buy a Home If . . .

If you lot concur with each statement below, so pack your bags, infant—you lot're ready to buy a business firm!

one. You lot're Debt-Free With a Healthy Emergency Fund

If you're familiar with what we teach at Ramsey, you probably already know nosotros want yous to have zero debt and a big fat emergency fund earlier you buy a domicile. Why? Because the biggest expenses that go far the way of people saving for a home purchase are all debt-related: student loans (51%), credit bill of fare debt (45%) and car loans (38%).ⁱⁱ

Come across how much house you can beget with our free mortgage calculator!

Plus, trying to pay homeownership costs (which come up to a median of more than $i,500 per month) with a bunch of other debt payments weighing downwards your budget volition put you one roof leak or HVAC meltdown away from bankruptcy or foreclosure.ⁱⁱⁱ We don't desire that to happen to yous—we want y'all to honey being a homeowner!

So, before you buy a house, buckle down and knock out your debts as fast as possible. Once debt's a distant retention, go busy stockpiling money in an emergency fund—three to vi months of expenses should do the play a joke on. Then your budget volition be secure and freed upward enough to permit you to quickly salvage a down payment that's chunkier than a newborn.

two. Yous Tin can Afford Monthly House Payments and Home Maintenance

The adjacent way to tell if you lot're ready to buy a house is if y'all know your budget tin handle house payments. For example, your monthly business firm payment should never chomp abroad more than a 4th of your take-home pay—otherwise, yous'd be firm poor! To brand certain that doesn't happen, hither's what's included in that 25% limit:

Principal. This is the original corporeality of money you infringe from your lender to buy a house. It's the main thing you desire to knock out fast equally y'all're making business firm payments.

Interest. Lenders are interested in letting you borrow their money because they brand a profit on what they loan you by charging a fee called interest—calculated as a percentage of the principal.

Property taxes. Local governments heighten money through property taxes to fund things like schools, law enforcement, fire departments and (supposedly) fixing potholes.

Homeowner'southward insurance. Sure, homeowner's insurance adds more dollar signs to your house payment. Merely paying for coverage will exist way less expensive than trying to replace all your stuff out of pocket if your business firm ever burned downwardly.

Private mortgage insurance (PMI). PMI is a fee you pay on top of your mortgage if your down payment is less than twenty%. It goes toward protecting your lender (not you) from losing money if yous stop making payments on your loan.

Homeowners association (HOA) fees. Basically, HOA fees are for community maintenance and upgrades. If you buy a house in a customs that has an HOA, y'all automatically go a member and will exist expected to pay the fee and keep your home up to HOA standards to help increment the overall property value in that community.

To see what these monthly payments might look similar for you, use our mortgage calculator. Call up, if the monthly house payment is more than 25% of your have-abode pay, take information technology as a ruddy flag that you're just not set to buy a house still—or attempt finding a cheaper firm or saving a bigger down payment to brand the numbers work.

Besides monthly mortgage payments, you lot'll also be on your ain when it comes to things like home maintenance. When you're a homeowner, there's no more than calling up the landlord to prepare the plumbing. Information technology's upward to y'all to either fix it yourself or budget for a pro to gear up it for you. Abode maintenance can price $1,100 per year.⁴ Then brand sure yous have room for it in your budget.

3. You Have a Skillful Down Payment

The all-time manner to purchase a domicile is to put 100% down. If paying greenbacks for your home isn't in the cards this year, set up a goal of saving at least 20% of the habitation price as a down payment. Otherwise, you'll exist stuck paying that pesky PMI we mentioned before.

Whatever you do, never take on a mortgage with anything less than a ten% downwardly payment because you'll end up paying so much actress in interest and fees and be in debt for decades!

If you do make up one's mind to go with a mortgage, choose a xv-year stock-still-rate conventional loan—the overall least expensive mortgage and the only kind we ever recommend. Our friends at Churchill Mortgage can walk you through getting preapproved for ane.

For a simple plan on how to salvage up a big downwards payment fast, download our Saving for a Down Payment Guide.

4. You Tin can Pay Your Ain Closing Costs

Some home sellers cover closing costs to sweeten the deal—but don't bank on it. On average, the buyer'south portion of endmost costs can range from 3–four% of your home's purchase price.⁵ For a $250,000 home, that'southward anywhere between $7,500–10,000 to embrace items like:

Loan origination fee
Home inspection
Appraisement
Prepaid belongings taxes and mortgage insurance
Title insurance
Recording fees
Underwriting fees

You can put money aside for your closing costs, merely yous won't accept a clear idea of what those costs will exist until yous receive a loan guess course from your lender after you lot apply for your mortgage. Just exist aware that these tin alter before it's time to close on your dwelling house.

You lot should receive your final closing disclosure grade at least three days before endmost. Review information technology advisedly for unexpected price differences, and inquire your lender to explain any charges yous don't understand.

5. Yous Can Cash Period Moving Expenses

Don't forget—buying a house likewise means y'all'll be moving! Then make sure to accept a separate pile of cash saved up only for moving expenses. Hiring movers can cost $700–1,900 (for a local move).⁶ Or information technology can be as cheap as a few pizzas to bribe your friends to assist—if they have the cargo space.

Also the heavy lifting part of your motility, hither are other expenses to be prepare for:

Boxes, bubble wrap and other moving supplies
Deposits for utilities
Cleaning supplies
Appliances that aren't included in your abode buy
Whatsoever pre-move-in upgrades similar painting, new furniture and closet organization

While you lot wait for your closing date, get proficient estimates for what these costs will be—request quotes from moving companies, shop for appliances, etc. Pad your move-in upkeep a bit so things get as smoothly as possible, and don't permit new-home excitement cause you to overspend on items you don't need right abroad.

half-dozen. You Programme on Staying Put for a While

Okay, another thing to think almost earlier you're ready to buy a business firm is if y'all're at a place in life where y'all're ready to stay in your urban center for more than than a yr or two.

Data shows that the longer you stay put in your home, the more disinterestedness yous earn (equity is how much your home is worth, minus how much debt y'all owe on it). Sure, information technology's obvious you lot'll gain more equity by paying down your mortgage. Merely the other portion of disinterestedness is gained past rising property value.

For instance, there'due south a gamble you could buy a house this year for $250,000 and sell it in five years for well over $300,000—simply because you lot took care of the house and the neighborhood remained popular. Of class, holding gains can be slashed by market crashes. But let'due south take a look at how years spent in a home impacted property value for dwelling house sellers last twelvemonth:

Fourth dimension in Home	Home Value Increment
2–3 years	12%
4–5 years	22%
8–x years	37%
21 years or more	168%⁷

As you can run across, homeowners who lived in their homes for many years were able to sell their homes at a higher price than those who only lived in their homes for a short fourth dimension.

So if you merely programme on staying in your city for some other yr or so, now might not be the best time to buy a house—all the up-front costs and work you lot'd put into getting a house probably won't be worth the pocket-size amount of value y'all'd gain by living in information technology for a short corporeality of fourth dimension. But if y'all dearest your city and plan to stay put for at to the lowest degree several years, ownership a business firm is a bully investment!

7. You lot Have an Adept Real Estate Amanuensis You Can Trust

It's not easy to find a house you love that'south also within your budget—that's why nearly 90% of all home buyers work with agents who swallow, slumber and exhale real estate to purchase their home.⁸ Plus, having a buyer'south agent by your side brings two large benefits:

Save money. In almost cases, the home seller pays the commission for your agent—so y'all pay nothing to get expert help! Even better, a buyer's agent can save you thousands of dollars on your dream dwelling by fighting for your best interests at the negotiation table.

Save time. Without a buyer's agent, yous'll take 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 accept intendance of the ruby-red record for you.

The but problem is there are plenty of dud real estate agents out there. And so, to feel truly ready to buy a house, try our Endorsed Local Providers (ELP) program. We make information technology quick and easy to discover top-performing agents in your area who take tons of experience helping buyers like you become the home of their dreams.

Find a superlative real manor agent today!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, besides every bit two syndicated radio shows and ten podcasts, which have over 17 meg weekly listeners.