Dave Ramsey: These 7 Factors Determine You’re Ready To Buy a House

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Compared to buying a home, renting seems like a waste of money to many people. But a house is a big investment, and you should only buy it when you’re ready to do so. Besides being personally and professionally stable, there are other factors to consider before you buy a house. These could range from unknown costs to building issues that may need significant fixes.

Financial expert Dave Ramsey’s website, Ramsey Solutions, offers seven factors that can help you determine you are ready to buy a house.

You Have Zero Debt and a Full Emergency Fund

The first thing to do before you buy a home is to get your finances in order, and this means having no debt and a full emergency fund. You can’t save up for a down payment if you have a stockpile of debts like student loans, car payments, credit card balances and the likes. A full emergency fund is at least three to six months’ worth of your monthly expenses which you can use to take care of unexpected house expenses that may come up.

According to the Ramsey Solutions article, “Before you buy a house, buckle down and knock out your debt as fast as possible. Once debt’s a distant memory, get busy stockpiling money in an emergency fund. Then your budget will be secure and you can focus on saving up for a down payment.”

You Have a Sizable Down Payment

“The best way to buy a home is to put 100% down,” said the Ramsey Solutions article. “But if paying cash for your home isn’t in the cards for you and you want to take out a mortgage, you will need to make a good down payment.”

The popular option is a 3.5% down payment FHA loan or a 20% down payment loan. The latter option is preferable since it means you won’t be paying for private mortgage insurance (PMI) and you’ll be paying off a smaller loan compared to the former option. A 5%-10% down payment is also OK, but making high monthly payments after that will help you pay less on fees and interest in the long run.

You Can Make the House Payments and Home Maintenance Costs

Some people imagine they’ll stop paying high monthly fees when they buy a house because they stop paying rent. But if your income cannot accommodate property taxes, homeowner insurance, homeowner association fees and sometimes PMI — on top of your mortgage and utility payments — you might want to reconsider buying that house.

According to Ramsey Solutions, “Your monthly house payment should never be more than 25% of your take-home pay. So, before you pull the trigger on a new house, add up how much your monthly payment would be and make sure it won’t go past that 25% mark.”

You Can Afford Closing Costs

If you can afford closing costs on the purchase of a home, then you may be ready to buy one. Sometimes, sellers can cover the closing costs but it’s not always a guarantee, so prepare to pay just in case. Closing costs include inspection fees, recording fees, underwriting fees, title insurance and loan origination fees.

According to Ramsey Solutions, “Saving 3%-4% for closing costs is a good rule of thumb — just to be on the safe side. But you’ll get a better idea of what your costs will be when you receive a loan estimate form from your lender after you apply for your mortgage.”

You Can Afford Moving Expenses

With any relocation comes moving expenses. You’ll have to cover transportation costs to move properties from your rental to your new house. Aside from transportation, also factor in moving supplies, deposits for utilities, cleaning supplies, new appliances you may need to purchase and any pre-move-in upgrades. Ramsey Solutions advises making sure you have a separate pile of cash saved up for moving expenses. 

You’re Planning To Live There for Years 

How long you want to stay at a place affects your house-buying decision. Only buy a home right now if you want to live there for at least five years. Do not buy a home now just because “it’s the right financial decision,” as it’s most likely not if you haven’t thought it through.

“Most of the time, buying a house is a bad idea if you’re not planning to live in it for at least five years. Because it usually takes at least five years for a home’s value to grow enough to keep you from losing money when you resell it,” said the Ramsey Solutions article.

You Have a Real Estate Agent You Can Trust

A real estate agent is more knowledgeable and familiar with homeownership and can guide you through the process. If you’re looking to save time and money on your housing decision, it’s best to speak with a real estate agent, as they can also provide you with listings based on your budget and needs while making paperwork easier for you.

Per Ramsey Solutions, “It can sometimes be difficult to find a house you love that’s also within your budget, but it’s a lot easier when you have a top-notch real estate agent on your side.”

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