Real Estate the Ramsey Way - Everyone Says This Is The Best Way To Buy a Home (Are They Right)?

Starting point is 00:00:08 We've been advised by a couple different people in regards to selling our home that we should not put the 20% down on the next home because we'll have a pretty good amount of equity selling our house. We're moving closer to our church and our community and our kids' schools. So we'll have a good amount of money to put towards our new house and they're saying not to put 20% down, but to save it and like fix the house separately nice. And then in six months, do like a reappraisal or a recast or something like that to. make our value then go up. And so my husband and I feel like, it's kind of like a game and we don't know whether we should play it.

Starting point is 00:00:45 When you say we're being told, who are these people? So we've gotten a couple different, well, for one, our realtor has told us this. He's like, this is what we did with our last house and it's got us. We went from like a thousand dollars extra every month and now we've taken that off of our mortgage every monthly or whatever.

Starting point is 00:01:03 And then when we talk to a couple different banks and like credit unions, they're like, yeah, that sounds like a great idea. So we're just like, I don't know if it is a great idea. Well, of course a bank is going to want you to put less down to take out more on the loan. They make more money. Yeah, but like what is our realtor gain from us doing that? Well, the realtors, if you ever met a realtor, their risk meters are broken.

Starting point is 00:01:29 They don't think in terms of I'm going to put cash into a thing. They go, how little can I put into a thing to squeeze the most out? And so I wouldn't be listening to either of these people. I would just go, can we actually afford this home based on the number we're putting down? And so have you done the numbers on that? Is there a house that you've already been looking at? Yeah, so there's a house. Like, our house is selling like this weekend or this next weekend.

Starting point is 00:01:54 And in a house we're buying is significantly lower. So it needs like updated flooring and stuff. But we would make like $115,000 off the sell of our home for the purchase of this next home. Okay. So we have a really good amount that we can. like put towards the house, but everyone's like, you should hold on to that and fix the house up now, nice, now that you have a chance to. Well, you'll always have the chance to. The question is, how urgent are the renovations,

Starting point is 00:02:20 and can you just cash flow them once you're in? Because here's the thing, if you put more down, your mortgage is lower, meaning you have more margin every month to then cash flow the renovations. But they're saying, like, if we could have that higher monthly payment for like six months, then you have a higher value home, and then your mortgage will go back low. I'm confused on that part. Just because your home value goes up doesn't mean your mortgage payment goes down. Because then it takes off the PMI is what they're saying. Because if we don't get 20 down, we get the PMI, and then we can get like 200 off our monthly every month is what they're saying.

Starting point is 00:02:56 Got it. Because you have, yes, because the debt to income ratio, you'll have more than 20% of equity at that point based on the value of the home. Okay. Well, you could just avoid the PMI entirely by putting the 20% down and cash flowing the renovations. Yeah. That makes sense when I'm on the phone with you all, but I don't know how to say that. Well, the other piece of this is they don't know your finances. They don't know what 80% on the mortgage is going to cost you every month. And if that's feasible for your take home pay. Yeah, how much is the new home you guys are buying? It's $325. It's probably what we, about what we would end up. Okay.

Starting point is 00:03:33 What we offered and what they accepted all of that. Okay. So yeah, so you guys are putting down. almost a third. I mean, almost 30%, right? If you put the 115. What's your take-home pay every month? Stay-home, but my husband brings right at $7,000. Okay, great.

Starting point is 00:03:52 So based on that, if you look at the parameter of, you know, fourth of your take-home pay, you're looking at $17.50 is the goal. Even putting $115,000 down on a $3.25 house with the current rates, you're probably looking at $2,200, $2,300 more. So here's the other thing they're not thinking about. Not within the parameters is what you're saying. It's tight. Now we say the 25% of take-home pay, that's after taxes but before any other deductions.

Starting point is 00:04:18 So don't include the health care premiums, the 401K contributions, which will help your numbers here. Okay. So I think you guys can do this, but I would be putting all of the proceeds down to the next house. Yeah, because the goal is just to get out of debt as fast as possible. And so when you sit there and kind of just play all these games and move the numbers around, praying that the interest rates and everything are still going down, right? Like, you just don't know. If your husband income goes down, well, now you still have stuck with this high payment.

Starting point is 00:04:45 Yes, so I just put everything down, Hannah, and enjoy the home. I live in California, and as you can imagine, housing is extremely expensive here. And I was wondering if it makes sense to buy a rental property before buying a primary property. what would be the purpose of doing that first? Is it a size issue? Like, is it a rental is way smaller than what you need, but at least it gets you in the door? What's the play here? I mean, my thought process is, I mean, in my area, I'm looking at maybe 700,000 even more to just buy a starter home when I was looking in other states to buy a rental home for, you know, much cheaper, much, much cheaper. And I was, I would be able to buy it outright, and I'm looking to make money off that. What are you doing for a living right now, just renting somewhere? I live in a rental apartment that's owned by my family, and I pay about 600 a month,

Starting point is 00:05:54 that's plus utilities. Do you have to live in your area, or are you able to work from anywhere? I have to live in my area. Okay. Why would you think about buying a house out of state and dealing with all that headache? Is it, yeah, what do you think is going to happen? You're going to turn a quick profit? I'm still trying to understand.

Starting point is 00:06:13 No, I'm just looking, I mean, I'm just looking like in the long term to see if it makes sense. I mean, I have money to buy a property. How much? And I have 300 to 350,000. What do you make per year? I make 130,000. So help me understand. you've got 350,000 to spend.

Starting point is 00:06:35 Something in your area would cost 700, so you could essentially put half down. I'm still trying to make sense of what the out-of-state rental property would do for you. I'm just sort of looking at the fact that, I mean, I'm looking at the fact that property taxes and insurance are much cheaper there. And I'm just looking to see. Are you moving there? But is it for an investment?

Starting point is 00:07:02 No, you're not going to move. Yeah, for an investment because I would invest that money. I wouldn't buy a house. I wouldn't buy real estate in another state. If you're looking to earn quick compounding interest, I would not invest in another property in another state. I would simply drop it in an S&P 500 index fund and let it sit for the next five years and keep adding to it and just kind of have a five-year horizon on this. And before you know, you'll have a $700,000 property. Hey guys, thanks for listening to Real Estate the Ramsey Way. Now, if you're here, you're probably

Starting point is 00:07:37 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.

Starting point is 00:08:17 That's ramsysolutions.com slash trusted agent.

Real Estate the Ramsey Way - Everyone Says This Is The Best Way To Buy a Home (Are They Right)?

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