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Dave Ramsey isn’t against buying a home, but he certainly has his opinions on when you should — or shouldn’t. What those opinions boil down to is pretty simple: Only buy when you can afford to do so.
To put this even more directly, he said on an episode of "The Ramsey Show" that, "buying a home is not a blessing when you’re broke […] If you have to borrow money to do this, you shouldn’t be doing it.”
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But how do you know if this is you? When is the right time to buy? Here are some more of thoughts Ramsey has shared on his show.
What To Consider on a 15-Year Mortgage
Ramsey said you should only buy a home when the purchase doesn’t feel like a burden. Otherwise, it can quickly become something you regret or can’t handle at all.
“Let’s go buy a house in a way that the home becomes a blessing,” Ramsey said. “So, you’re out of debt. You have your emergency fund in place. You take out a 15-year, fixed-rate loan when the payment is no more than a fourth of your take-home pay. And you don’t need a cosigner.”
Consider this. As of July 16, the average APR on a 15-year, fixed-rate loan was 5.93%, according to Freddie Mac data via the Federal Reserve Bank of St. Louis (FRED). It was 6.55% on a 30-year loan. Meanwhile, the average sale price of a new home was $540,600 in May of this year, according to the U.S. Census Bureau.
Dave Ramsey has recommended having a 20% down payment at minimum. On a $540,600 home, that’s $108,120 saved up. The financed amount would be $432,480. The estimated 15-year monthly mortgage payment (excluding taxes and other fees) would then be around $3,600.
Following Ramsey’s advice about keeping the monthly payment to no more than 25% of your take-home pay, you should be bringing in roughly $14,400 every month. That leaves you plenty of room for other bills and investments.
Ramsey is also adamantly opposed to buying property if you need a cosigner. That’s because he believes having a cosigner signifies you’re broke and your credit doesn’t allow you to qualify on your own. If a bank requires you to have a cosigner before approving your loan, that’s a sign that you can’t afford it.
Determining Your Homebuying Readiness
Ramsey isn’t against buying a house at all, as long as you can meet the basic financial criteria. One thing you might consider if you’re unable to afford a more expensive home is to go for something cheaper, like in the $250,000 to $300,000 range.
Finding a home in that range that’s still comfortable might require a lot of shopping, but it’s doable. A lot of it depends on where you’re buying.
For example, Zillow estimated the average home value in North Carolina to be $340,430 as of June 30. In Oregon, it was $504,432. That’s quite a difference in terms of affordability.
Ramsey also said buying a home is about having the right mindset, suggesting in one episode to learn the market by:
Looking at 4+ properties
Driving to different neighborhoods at different times of the day and week to get a feel for what they’re actually like
Checking out homes and seeing how old they are or how worn out their appliances are
Gathering as much data as possible ahead of time
He also suggested comparing home prices within neighborhoods. If one property is priced much lower than the others, consider what kind of money you’d need to put into it to ensure it’s worth the purchase.
Last but not least, be patient.
“There’s nothing on fire,” Ramsey said. “Dig up something that you like, the house, and that it’s in good enough condition that you can see it becoming — with the money that you have — the place that you’re going to be for a while.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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