Real Estate the Ramsey Way - Dave Walks Through the Process for First-Time Homebuyers

Episode Date: February 23, 2026

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Dave Ramsey here and welcome to another episode of Real Estate, the Ramsey Way, where you'll learn how to make smart home decisions, avoid costly mistakes, and navigate home ownership with confidence. Page is in Salt Lake City. Hi, Paige. How are you? Good. Thank you for taking my call. Sure. What's up? My question is, my husband and I were looking to buy our first home here early next year or middle next year.

Cool. Yeah, and my question is, what are some things that first time homeowners like usually miss, like cost-wise, like closing costs or what's your cost, inspections, what are some things that first homeowners overlook in the buying process? That's a really good question. Okay, the first way to make sure the question is answered is get a high-quality Ramsey-Trusted real estate agent in your corner because they're going to have the heart of a teacher because you're going to forget half of what I tell you in the next few minutes. and when you do, then you've got that person that's the heart of a teacher that can walk you right through it. Okay?

Yes. Okay. You get them at Ramsey Solutions.com slash agent, and you get somebody in your area that we trust and has been trained by us, and they will have the heart of a teacher. And they will not walk around with their nose in the air, acting like you already know everything. They're going to make sure you understand every single detail. Now, yes, you need to get a home inspection. Mm-hmm. No, you do not need to take it super seriously.

If they say the front porch light is blinking on and off, that's not a reason to walk away from the deal. You can fix the front porch light for a couple of hundred bucks. Shut up, okay? I want to know about water. I'm always looking for water damage. I want to know about major stuff in a home inspection. Mold, foundations, heating and air systems that are about to go kaput, that kind of stuff. The roof.

You always get a home inspection, all right? I'm guessing that you might be getting a mortgage. Yeah, we're going to do a 20% down payment. Good for you. Good. Now, then all of this stuff has to do with mortgages. Number one, you will have to set up at the closing the escrow account. They will call it prepaid, and they'll typically collect about three to six months of the property tax amount and three to six month of a homeowner's amount.

And that sets up your escrow account for your insurance and your taxes. And then each time you pay a payment, you add a 12th of each of those to that escrow account. And when the taxes come due, they pay it from the escrow account. But it's a pretty hefty out-of-pocket expense called prepaid to set up the escrow. Okay. The second thing is points. If you pay points, you will lower your interest rate. One point equals 1% of the loan amount.

Okay? It will lower your interest rate about 1 eighth of a percent. percent per point you pay and it's not worth it. Don't do it. Because in other words, it takes you eight years to recoup your money. So we don't do that one. Okay. The other one that's akin to that, the mortgage brokers a lot of times will charge an origination fee and it typically is one to one and a half points. And so what you can ask for from Churchill mortgage if you go to them is what we call a par quote, which is a little higher interest rate because you're not buying it down with the origination fee or the points. But it saves your out-of-pocket considerable because all the

origination fee is profit to the mortgage broker, and the mortgage broker also makes a profit when they sell the loan. So you can get what's called a par quote. They typically will jack your rate a tiny bit around an eighth and a par quote on no points. So if you call me up and tell me, you paid a point and a half origination in five points, you know, yeah, you probably lowered your interest rate like one and a half percent under market. But you prepaid all the interest in essence. That's what those two things are. So we don't recommend doing that.

I'm looking for a par quote on my mortgage. 15-year fixed. You already know the drill. I can tell page. Okay. Next thing is they're going to require you to get a survey, even if it's a stupid little subdivision lot where it's very predictable and you're never going to have any trouble with those lines, and the survey's not worth anything because you're not going to even use it to put up a

fence. You've got to get a different survey to put up a fence. But this is a loan survey. It's typically 100, maybe 200 bucks in your closing cost. It's one of those mystery closing costs. But the mortgage company simply wants to make sure the house is actually sitting on the lot and not on the neighbor's lot. And I have had those things discover where the corner of the freaking house is five foot over in the neighbor's lot. And we have to kind of do something about that because the mortgage company's not going to loan the money. Oh, and by the way, the buyer's not going to buy the house either if you got a good real estate agent. So the next thing is they will require that you buy a mortgage title insurance policy. This is different than the MIP that you're avoiding by putting down 20%. The mortgage title policy

is title insurance that if the title is bad, this insurance company has to write the mortgage company, not you, a check to cover if the title's bad or pay off the people that come. So, for instance, one time I bought a house on an investment deal many, many moons ago, and the bought it from two sisters who had inherited the land. They apparently forgot that they had a brother. And we signed off on everything and the brother shows up. The title insurance company did not catch that there was a brother in the estate file, estate, you know, the pro, you know, the probate file and so the title insurance company I had title insurance ensuring that I had good clean title I did not because I only had two thirds of it the brother had the other third they came

in wrote bro a check and bro went on his way that's called an owner's title policy so when you buy the title policy for the mortgage title insurance for the mortgage company they will allow you for a few dollars typically a hundred bucks again something like that you can ask your title company for an extra hundred bucks you can also get a simultaneously issued exact same thing cost them no more money that's why they don't charge much for it to give you the owner's title insurance policy so that if there's bad title the mortgage company's covered and you are covered i highly recommend both of those i would never buy a piece of real estate without title insurance ever and i don't now who pays for the title insurance can change from area to area.

And in our area, it's customary for the seller to pay for the title insurance. And so then you can buy the simultaneous issue for $100 or whatever. But I don't know who's paying for yours. In your case, you'd have to ask your local real estate agent that can tell you all of that. You'll also have a document prep fee that pays the title company or the attorney that's closing it for prepping it. They also, on top of that, will charge you a closing fee. as if they didn't get enough for prepping the docs. They also charge you a closing fee, but they're not huge amounts of money.

But you're going to look down through there and you're going to see odds and ends of those. And then lastly, you'll see on the closing statement a proration of the taxes for the year. So if you buy the house on the 1st of August, you have four months of the taxes. And the seller has eight months of the taxes. Now, have the taxes been paid for that calendar year yet? If they have, the seller is going to get a credit and you're going to get charged because they've already paid the taxes through the end of the year and you're going to own the house for four months that year.

Okay? Vice versa, if the taxes are closing in August, but the taxes are due in October, you're going to get a credit for the whole first of the year from the seller for the first eight months and then you're going to be responsible for the remaining taxes, and they're going to show up in that prepaid escrow account that I told you about. All right. So that's a couple of the things you look for. But here's the point of that whole thing.

All this stuff is gobbledy goop, and it's all lumped into what we call closing costs. And people go, oh, my closing costs were so high. It's like it's a vague term. No, you can get in there and dig around and understand what each item is, and you can select to not do some of the items in some cases. That can be part of the deal. But everything I outlined for you is pretty standard, and you're probably going to do it.

Hey, guys, thanks for listening to Real Estate the Ramsey Way. Now, if you're here, you're probably thinking about buying or selling a house. It's exciting, and one of the biggest financial decisions you'll ever make. But you don't want to do it with an inexperienced agent who will rush you into costly mistakes, like the ones some of our callers find themselves in. You need a pro who knows what the flip they're doing, and will keep you on track with your financial goals. That's why we only recommend Ramsey trusted real estate agents.

These are vetted, hand-picked pros who actually listen to your needs, guide you through the process, and fight to get you the best deal. To find a Ramsey trusted agent near you, go to Ramsey Solutions.com slash trusted agent. That's ramsysolutions.com slash trusted agent. All right. We have Susan in Arkansas. coming up next. Hi, Susan. How are you? Good. How are you? We are doing great. How can we help? Good. My husband and I are on, we finished all the baby steps. My husband is 67. I'm 61. He is going to go into our partial retirement next summer. And our net worth, including our home, is about 3.5 million.

Oh, wow. Good for you guys. But the 2.5 of that is, you know, not, not. of home and I guess a million of that is in brokerage and then the 1.5 is in RAs. Okay. So the question is we have a son and daughter-in-law that live about five hours away from us in a very booming market and they're just having a growing family and it's just so important us to be close to family and we're running up there all the time staying in hotels and being guests and all that. And we are really wondering if it would be wise to buy a small house, maybe three.

We're looking at there are some starter home neighborhoods for like we could get a, we could get a brand new house for 350,000, you know, like 1,600 square feet, just something that we could stay in when we go up there. The thing is we are going to be probably locating at about three years to that city. Oh. So, but, you know, we have three years to be going back and forth and all that. We want to be up there more because the babies are babies right now. Sure.

So, you know, it's been suggested that we would rent maybe something for a couple of years and then makes a big move in three years. But it's such a booming market that, you know, when we're not up there, it would just be sitting in there and we'd be paying rent on it. But if we buy, we would be building equity. Yeah. How far away are that? It's about five hours away.

Okay. And what's the three-year mark? Is that his retirement when he's done fully? Yes. He's got to step down retirement, you know. Okay. He'll be needed to be in our town right now. Well, and you guys can cash flow a 350 home right now, right?

We could, yeah. So I would probably just do that, Susan. I would not rent. No. I would either just have a little hotel fund and know you'll be staying in a lot of hotels for the next three years and that's okay. Or I would just go ahead and buy. I'd be trading one asset for the other, right? It would be trading some of our net worth right now.

It would. But you're going to sell your home in Arkansas to move full time in three years. How much is your house in Arkansas worth? About a million. Okay, great. So that's great. Then I would just put that in investments. about our house is it's about five years old.

It's brand, you know. But if we wait too long, it's not going to be brand. It's not going to be as new as it is right now. Oh, it's just three years, Susan. You're fine. Yeah. I wouldn't worry about that. Yeah, I'm not concerned about any part of this.

No. You're not concerned about any of that. I guess it's just a love where we are finally, you know, with the baby steps and all that. Yeah, I hear what you're saying, yeah. Well, you're not taking any sort of a step backwards if that's the way it feels. You're just shifting assets from, which. retirement to a home. And then when you guys sell your million dollar home in Arkansas in three years, oh my gosh.

That's going to be a nice chunk of change. Yeah, you'll just put reinvest back in and keep on moving. Yeah, and just move up there and sell the smaller house and just get the forever house, I guess. Oh. Oh. So you would sell the $350,000 house by your family and get a bigger? Right. Okay, then I would not do much.

I'm sorry. I thought the home you're going to buy now is just the home you guys retire in. to? No, no. Okay, then I would not. Then I would not. No, you do not. You'd not, me, be in the estate for three years. No, no. Okay.

So I would just either stay with family, stay in a hotel for, it's just three years. It's just three years. You can do this. And then when you guys sell in Arkansas, I would move a million dollars from Arkansas, a million dollars to where you are and just break even. Okay, so don't know. What if we would keep it as a, I don't know, rental proper, property or whatever. How long is what's the least amount of time to stay at real estate?

I mean, I'd say five years probably. Okay. Okay. That's, this is a different question. And I don't, so if you bought the $350,000 house today, you lived in it. And then the plan was when you're ready to live there full time, that becomes a rental. And then would you turn around and buy the next house in cash, or would you be thinking that there's some sort of mortgage on that? we would take the million that we'd sell in our current home, you know, and put that in another home. Okay.

And we would say in this other location is very expensive. Right. But I'm saying. We would downshack a little bit. Okay. But you wouldn't take a mortgage at all? No. So that, yeah.

So then that's just a question for you guys, Susan, if you enjoy real estate, do y'all want to be landlords and retirement? So, you know, that's, I mean, I come from a real estate family. I love it. I think that that's so fun. I like diversifying. all of that but also Susan you're going to get calls and you know John and Sue who's written from you their thing is they're you know that's broken you and you guys are going to coordinate I mean it's a little bit of a job like you got so it's not an so it's not one thing about investments that's great is

you put it in you'll leave it and there's no hassle and you get the returns and you live your great life real estate is a fun investment but it's but for you guys it's going to be less about building equity in the home itself to you unless you guys want to sell it's it in 15 years. But it may just be more of a generational property even. I don't know. You want to look long term at it, but just know

that the rental game, I think it's fine. But usually where you make your money is not the rent month to month. It's the equity built in the home. Right. Is usually what you get. And usually you try to get a deal, which buying a brand new home wouldn't be that.

You're not going to get that. But you can afford it. So you're fine. So it would just be a question for you and your husband. Do you all want to be landlords? in retirement. You would definitely not do it if we were not going to rent it later. Yeah.

If we would buy it for three years, you would not do that. Well, I think this plan would cause you to decide to make a different choice on the house that you might purchase short term. Yeah. Does that make sense? Because you're going to want to think about it as the rental later, not as the house that you're enjoying now, if that makes sense. Yeah. Okay. But if you're not wanting to rent it out and be landlords, you're like, no, that sounds like a house.

headache I would not buy until you're there full time. Because a turnaround of buying a brand new home at 350 in three years, we hope it goes up. I mean, I don't know, but there's always always that risk that you're maybe buying at the high end. And then in three years, everything kind of like softens a little bit and you end up losing money on it, which we don't want, if that is the case, because it is such a short turnaround. So yeah, so I would either buy the 350 home knowing I want to keep it and rent it out as a long, long, term rental home as a part of your overall estate and then cash flow of the main house or just be patient and wait three years and then just buy the million dollar home and then the 350 stays in

the IRA and you guys just continue on. Okay. Well, that's a yeah. Okay. Well, that's a great option. Wonderful. Thanks, Susan. Good question. And what a great, what a great problem to have. You know, sweet. Just so, yeah, yeah, thinking through like the family and how do I want to spend my 3.5 million. Yes, I know, I know. I mean, well done, Susan. Well done. But that is a, it can be a misnomer and I think real estate can feel like a glamorous, oh my gosh, sophisticated. Like, I'm in real estate and we're in real estate and we have investments and real estate investing. You know, it's just, it is a part. And I think it's a, it can be a great part. And I think it's like, if you're interested in it and it's what you love,

you know, we're not against it by any means. But it's not passive. Not passive income. That's Right. Yeah. And usually with it, how you're making your money is the equity of the home of the actual property when you make a lot. So that's the key. It's not always the monthly rentals. That's like, you know, that's not the thing that's going to do everything for you. It's really the equity that you're building in. But it's a great question, Susan.