In today's turbulent housing market, navigating the path to homeownership requires a more strategic approach than ever before.
As prices rise and interest rates rise, potential buyers face countless challenges. But despite the complexities, financial experts like Dave Ramsey offer valuable insights to guide homebuyers through the process.
Ramsay shared three rules for buying a home in May 6 Posted on X:
1. Be debt-free.
2. Keep enough money in an emergency fund to cover family expenses for three to six months.
3. Never take out more than a 15-year fixed rate mortgage.
In addition to following the first three rules, Ramsey said homebuyers should never have a mortgage payment of more than a quarter of their take-home pay.
“You could qualify for twice that amount, but don't do it, don't be that stupid,” he said. “Keep it conservative so you can pay off the house in less than 15 years. That's the goal.”
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Ramsay also suggested making at least a 20% down payment on a conventional Fannie Mae loan to avoid paying private mortgage insurance, which costs $75 a month for every $100,000 borrowed. That works out to $225 per month on a $300,000 loan.
“This is very essential,” he said.
Paying that kind of money for something that benefits the mortgage company and not the borrower is a waste, he said. But putting down 20% for a home gives the buyer a loan-to-value ratio of 80% and allows them to “avoid having to buy the ridiculous PMI.” symbolic He said.
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“Mortgage insurance is something you buy to the mortgage company,” he said. “If they have to foreclose on you, it covers them. It does nothing for you.”
Ramsay's website offers more advice when it comes to buying a home. In addition to counseling on X, he suggests getting pre-approved for a mortgage and finding the right real estate agent. When you find a home you want, be sure to get a home inspection and appraisal done – you are getting a loan, and your lender will ask for an appraisal.
Be sure to review your closing documents in advance so there are no surprises on closing day. The documents will specify closing costs, property taxes, homeowners association fees and home insurance.
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