Real Estate the Ramsey Way - Home Buying Advice NO One Else Will Tell You

Episode Date: September 25, 2023

Buying a home is a huge decision with a lot of big emotions! It can be hard to know if you’re making the right decisions the right way. In this episode, learn Dave Ramsey’s tips for buying a house and find out when it’s the right time for you to buy. You won’t hear this home-buying advice anywhere else. Helpful Resources: Ready to buy a house? Check out our free Home Buyers Guide for everything you need to know from home search to signing. Find the best real estate agent in your area, endorsed by Dave Ramsey to treat you the right way.

What's up, guys? I'm Dave Ramsey, and we're back with another episode of real estate, The Ramsey Way. This one is all about buying a home the right way. It can be exciting, it can be stressful, but it is always a huge decision that comes with a lot of emotions. And you should feel confident about what you're doing before you hit the ground running and start shopping. So, stick around for the home buying advice that you're not going to get anywhere else. I'm 20 years old, and I'm looking to buy a house within six months. to a year. Besides having 20% down, what other tips would you recommend for a first-time home buyer? Also, is there anything that I need to look out for? Yeah, I would say there's a couple of things to

keep in mind. I think it's great that you're putting 20% down. We would say to do a deal where your payment is no more than 25% of your take home, and that's taxes, insurance, all included in a conventional loan. And I love that you're putting 20% down because then you can avoid PMI, which is private mortgage insurance, and it's just an additional cost there. But with 20% down, you can avoid that. But I feel like you're in pretty good shape. I mean, other than that, it sounds pretty good to me. Yeah, a couple of things. Good idea. Good question, by the way. 15-year fixed rate, 25% of your take-home pay. Always, everyone, anytime you buy a piece of real estate, get title insurance, 100% of the time.

Anytime you're buying a piece of property that is not a traditional subdivision lot, meaning it's very, very predictable. Always get a survey. So if you, you know, I bought three acres, it turned out to be 1.75. No, that, yeah, no, we, we, you get a survey on it. Okay, now you've got a standard subdivision lot that is pre-platted and has changed hands three or four times. You don't have to worry about that. It is what it is. But if you're buying something, otherwise, get a survey, get title insurance. Get a home inspection. You're 20 years old. You're not an

expert on much of anything in that house unless you just happen to be an electrician or something, and then you would be, right? But yeah, get a home inspection, period. I bought and sold several thousand pieces of real estate. I get a home inspection. Last house I bought, I got one. Okay. I can go in there and scratch around in the cross space and try to figure it out, but for what it costs, let somebody else do it, right? That's the thing. Don't buy a house that is a great price but is ugly from the street. First house I bought was that.

I got a great deal, and this house was ugly from the street. There's no fix an ugly. Yeah, that's for the fix ugly. okay it's just still going to be no well we could we could no don't don't don't don't try to fix ugly ugly it you just look like you know oh had plastic surgery and you shouldn't have bothered oh don't do it you know i mean oh mean don't you just can't fix it leave it alone just don't don't it's not a good buy because if you get a good buy on it now when you get ready to sell it you know what you have an ugly house and you're going to give somebody else a good deal because nobody wants

an ugly house so that there's a reason it was cheap when you bought it and there'll be a reason it's cheap when you sell it. And that's also true with the actual floor plan. I bought a house one time. No, actually, I didn't buy. I rented it one time that was a four-bedroom, but to get to one of the bedrooms, you had to walk through the other bedroom. Oh, yeah. That's terrible. Terrible. We used to call these country-built houses where you just keep adding on, adon, adon, and you just go, yeah, well, there was actually no plan from the beginning, and then you've got no plan. So be careful with that kind of stuff. You can get excited, particularly on your first buy,

and try to buy something that's a little bit boring. That's good advice. You know, don't try to like reinvent the word. I'm going to do a rehab. Oh, God, no. Well, I mean, you could pick something that's got things that you can fix. Like, if the carpet's super ugly, there's things that are outdated. You can change that.

You can put the gutters up. That's fine. But don't tell me you've got to change the old. No, yeah, I got to tear out. I got to add, no, no, no, no, just boring means less risk going in and less risk going out. And so a nice little house with a little picket fence and little bushes out front. And you look at it from the street and everybody goes, oh, that's cute. That's where you want to start.

What do you think about corner lots? Because when we bought in our neighborhood before we came here, we thought we had a good lot because we were on the corner by the gate. And for us it was great. We thought, oh, we could take the dog out. It's easy access. But then when we got ready to sell, it's sold for less. Corner lots are a mixed blessing because generally corner lots present well from the street. Right.

But you have no freaking backyard. You got this little tiny triangle back there where they crammed the house back inside at a 45. And so it depends on the subdivision, depends on the lot, size, all those kinds of things. But generally speaking, you get a nice presentation from the front and then you're pinched in the back. Yeah. That's generally what you get. So watch for that. That's not the end of the world, but watch for that.

Again, if you've got a concern when you're looking at it, know that the buyer when you get ready to sell, it's going to have the same concern. So just don't get so excited. You rationalize your way into stupidity. I know a guy who's done that a lot in his life, and that's how he has a radio show. So be careful. Kurt is in Fort Lauderdale, Florida. Hi, Kurt. How are you?

Hey, Dave. How you doing? Better than I deserve, man. What's up? How you doing? I'm 25. I'm not filled with my job, and I'd like to move out at my parents' house, potentially looking up north.

But I have about 50,000 in investments and 90,000 in my savings, and I'm blessed to have no debt. Should I move with the current housing market situation? Should I wait? And if I should wait, should I move some of that savings money into investment, make some money while I'm waiting? Well, the housing market, as you mentioned, is wide hot. in terms of buying a home.

Some areas, the rental market is also closed up. And it's very difficult to find a rental. And so rental prices are going up as fast as real estate prices are, which there should be a correlation between the two. That makes sense. So you have done a wonderful job saving money, sir. Well done. You save all this money or did somebody give it to you?

I'd say about half, maybe a little less than half as an inheritance to my uncle. The rest is all just me saving. My father and my mother, since I was young, I've always told me, you know, spend half, save half, and I just was never really a big spender, so I saved more than half at that point. And so I've just been saving for, I've been working since I was, you know, 16, so I've been saving for a while now, and I'm just, I've always been looking forward to buying a house, and I just was feeling that was the right time, but with this housing market, I'm just, It's kind of shut down my housing.

You said you might move up north. What are you going to do for a living when you move? Well, I'd stay within the same industry, but right now I'd probably go more into analytics. That's what I like to do. Right now I do more risk management. So, Kurt. You know, get into more analytical. So I'm glad we've identified this because moving up north, I think you had in mind there's

some companies or a company or a specific job. And I think that's the part we want to work on first is you're not happy in your job. And so you know, the good news is you're clear. You know what you want to do. You have a good idea of the analytics is where you want to go. I think I'd determine that. Where's a good place to land there? Then I'd make my housing decision based on that. Okay. So do you have a good idea of some companies or do you have something? When you say move north, are you just thinking an area or are you thinking company that's pulling you north? I was thinking more just Orlando or Jacksonville because I have current social networks there that would you know and finding a job there's obviously a lot of within my

industry there's a lot in Orlando and Jacksonville I was looking there just to kind of get away from where I was where I've currently been where I've lived all my life you know sure well that's really good strategy so Kurt I think you now you need to take some action steps and so I would begin if you haven't already you obviously have the social networks there I would actually begin to engage those social networks around those companies You identified both friends, connections, and several companies that are in your industry, or at least you know that it's pretty hot there. I'd start making those connections. I'm going to give you a copy of my number one bestselling book, The Proximity Principle,

which actually walks you through step by step, how to make those connections, who specifically you're looking at. Because I think if you get really serious about that, Kurt, right now, you're in great shape financially. Let's find those opportunities. Let's go ahead and get interviews. Let's land the gig. and I think the housing decision will take care of itself because you've been very smart with your money.

But let's land a job and then let's make a housing decision as a part of that. Yeah, here's what I will just add to that. I'll take the back end of that strategy. So start working the social networks. You're only a few hours from those towns. Get the job landed. Then go rent an apartment for six months.

Then during that six months, start looking for property. Don't overpay. There's no reason for you to have house. fever, you can take your time. And if the market's white-hot and you have to dramatically overpay to get a house, then that's God's saying don't buy a house right now. Buying a home in today's market can feel like a roller coaster, but you can be prepared to face this thing head on. Check out our free homebuyers guide for everything you need to know from home search to signing. Check out the link in the show notes or go to ramsysolutions.com slash buyer. Hi, Maria. Welcome to the Ramsey Show.

Hi, Dave. Very excited to talk to you. Thank you so much. Sure. My question is this. It's going to be, I guess I'll ask the question first, and then I'll give you the background. Okay. Is it financial, just financially speaking, not regarding how I feel about homeownership, just financially speaking. I'm 58 years old. I have no debt. I have fully funded emergency fund. I have fully funded retirement, both Roth and 401. How much?

I own my, how much is in it? There's about a million in it. Okay. Cool. Good for you. Well done. Between the both. I raised my four kids.

They're all out of college. I'm single and my home's worth about $3.50. And I paid it off. It's paid off. Okay. Tax is a really high. Taxes are really high in Illinois. I heard the rumor.

Okay. But anyway, so I think I want to downsize because I don't need my house anymore. Cool. And I'm not, so I would go to like a townhouse. Okay. So just financially speaking, it would it be a really bad idea for the next 30 years for me just to rent? And the reason why I asked that is because in my heart, I'd had so much responsibility in my whole life, raising my four kids, keeping up with my house. I wouldn't mind just writing a check every month and just be done.

And, uh, but everybody's telling me, like, financially speaking, you could sell your house to three, 350 who buys something for $350 or less. I'm like, then I thought, you know, then I got to worry about the house again, the windows, the roofs, the gutters, all that, you know? Mm-hmm. The question makes sense? No, yeah, it makes a lot of sense. I understand. So, did you raise your kids by yourself or your single mom?

For the most part. I mean, I was divorced and they were very, very young. He was, he was. So for 20 years, for 20 years, you've been a she bear out here fighting. scratching, clawing, and you've cleaned the gutters. You've done whatever it took and you're just tired. Yes, I look over time. Every month at work.

Yeah. I'm sure I was, yes. I thought you were that girl. I thought you were that girl. You sound like that girl. You sound like a warrior, a warrior princess. So, well, let's first answer your question, and then let's try to look for a solution, okay?

The problem with your, the good part about your theory is you don't have to with stuff because the landlord does. So you get all this stuff out of your life. The bad part about this is think about what rents have done in the last 30 years. Got up. Gone up. You think? And think about what they're going to do during the 30 years that we're talking. So if you rent, instead of owning a paid-for property going into retirement, you're destabilizing your life because every year your housing cost is going to go up. True. So that's why it's a bad plan. It's not a bad plan to rent for a short period of time while you're rearranging things or you're in a transitionary stage or something like that. But renting for 30 years means you are a victim of the real estate market instead of riding the wave.

Can I throw something else at you? Yep. Okay, so I put down on paper because this has been like stressing me out. If I put down on paper, my taxes versus all my bills in my house. Oh, I think you need to move. Okay, but like I even projected class if I was in a townhouse. Yeah, here's what I want you to. Here's what I would do if you're my little sister and you're old enough to be my little sister, okay?

Oh, not your older sister? No, I'm 60, so I got you beat. But the, so I would tell you, you don't want to work on crap and you don't want crap breaking and you are a millionaire. So you need to go buy a brand new condominium. where someone does all the exterior maintenance and every appliance and everything inside is brand freaking new. You earned it. You're a rock star and you need to enjoy a little bit of this money.

And it's like buying a really nice car that's in really good shape after you've been driving a freaking beater and it breaks down all the time. And, you know, my cars don't break down now. Back when I had crap cars because I was trying to get here, they broke down all the time. But you're a warrior girl, and you need to enjoy the spoils of the battles that you have won, and that's a million dollars and a $350,000 paid for house. You're worth a million and a half dollars. I want you to sell this house.

I want you buy a $350,000 condo. You may want to move to an area that probably might feel a little bit like it's a little too richy-rich for you, but you need to live there anyway. Wow. Okay. I'll think about this. Thank you. Very good information.

What are you think, John? Yeah, I think that transition, when you're a single mom, when you're raising kids and you're putting them through college and you're saving and you're working, you're doing overtime, it's kind of like being gazelle intense for 20, 30 years. And suddenly your identity is, I'm a sprinter. I'm a fighter. That's what I do. Yeah. And how do you settle back down? You can hear it like, man, for someone who's accomplished when she's accomplished, the fact that this decision's keeping her up means it's not about this decision.

It's about, I've got a shot. shift gears and become something else, right? That's a big, big transition. Yeah. What do you do when you come home from a 20-year campaign on the road with Alexander the Great and you're one of his soldiers after 20 years? How do you stop fighting and scratching? You will pick fights with your neighbors, with your dog, with everybody.

And so, you know, and that's what she is. She's a warrior princess. That's right. And so, you know, she's been, these single moms, man, they get her done. These are some of the toughest people in on our planet. And so, yeah, that's, and that's who she is. And she's like, you know, she's kind of telling herself good things. Like, I deserve a rest.

That's right. And, Dave, we talk a lot about people making decisions out of stress or out of anxiousness. That's very similar to making decisions out of exhaustion. I'm just, I'm done. I'm out, right? I just want to, I know the math is bad, I know it's going to destabilize me 20 years from now. I'm exhausted. I don't want to fix any thing else.

I'm exhausted. I don't talk to any more freaking repairment. I've talked to people who get divorced because I'm just tired of it, right? So I love your, I love your idea of, man, right now it feels good. It's not going to be good down the road. No, it's a bad, long-term plan. When you get desperate, afraid, or angry, the higher thinking, the higher thinking, parts of your brain shut down.

And you don't make good decisions. So I have found in my life, once I get, if I get greedy, if I get afraid, if I get desperate, right after that, I get stupid. And right after I get stupid, I get broke. And so that's what's happening in the housing market right now. Because, oh, God, the house prices are up and oh, God, the indebted. The actress rates went up and, oh, God! And once your brain starts doing that, you're getting ready to do something stupid.

Party's over. There's going to be a lot of regret, and they call into this show and go, Dave, I did something stupid. Dave. Help me. Where were you three years ago when I was doing something stupid? I was sitting right here. It's where I've been for 30 years. They always find the show.

I haven't moved. As soon as they do it. And I'm still telling you the same things about money because these principles that we teach are timeless. Now, we teach people to get out of debt and stay out of that. When it comes to a house, it's the only debt we don't yell at you. and we always have told you, and we still will tell you, even with the house prices so high, to get a 15-year fixed rate

where the payment is no more than a fourth of your take-home pay. Now, why do we do that? Just because we're killjoys? Kind of. Just because we don't want life to be good for you. No, we do that because we love you. We care about your financial future more than that banker does, more than the mortgage companies do.

We're not making money off of this. Off of you getting a mortgage or not getting a mortgage, Are you getting a house or not getting a house? It's okay. We're okay. You're okay. But here's the thing. If you get in crazy mode because of what's going on out there,

you're going to buy too much house. You're going to put it on a 30 year. And you're going to be stuck in the middle class or lower middle class loop. All in the name of buying a house because buying a house is financially smart. If I can't get one now, I'll never get one. Well, they're throwing money away, Dave. They're throwing money away on rent. That's the argument.

Calm down. It sounds like a weather forecaster when there's a tornado warning. That's the way your brain sounds. Oh, God! That's their Super Bowl. That's where they get to create all the fear. Oh, man. So, yeah, that's, and when your brain is doing that,

and people do it when, you know, the first time I ever heard it was like, okay, I live in California, math doesn't work in California. Well, we kind of know that, but yes, it does. For different reasons. A lot of psychedelic drugs. involved in this, but yes, it does work. Yeah. So here's the thing. Speaking of California math, CBS News is reporting one of the biggest hurdles in buying a home is coming up with a hefty down payment. California has a new program to, end quotes, help. First-time homebuyers jump that hurdle.

What do you think, George? Oh, boy. Keep reading. You got it. California's forgivable equity builder loan allows first-time homebuyers who have enough income for a monthly mortgage payment to borrow up to 10% of a home's purchase price to buy a house outright. The loan has an interest rate of 0%, but borrowers who don't occupy the home for at least five years may have to repay the loan. What a concept. So you can borrow your down payment at 0%.

In California, the new effort comes since real estate prices have hit record highs in California. And rising interest rates have pushed monthly payments up hundreds of dollars. This is the way people's brain sound. I'm telling you, I know exactly how your brain sounds. Because this is how mine sounds right before I do some stupid butt stuff. It sounds like a beagle chasing a rabbit. Is that what it sounds like? I don't know, something like that.

That's close. Your brain is shutting down. A standard down payment of 20% for a home in California could cost upwards of $100,000. Well, no kidding. That's the thing. If you get a million dollar home and they're letting you borrow up to 10% at 0% interest, So letting you borrow $100,000, you still then have to go get a $900,000 mortgage. And that's if your income qualifies.

That's assuming you qualify. But here's the problem, okay? You can't look out there five years in the future and know what stupid but stuff the state of California is going to do that makes you want to leave. And you can't leave. Because then you have to repay that loan. Tadin, to dang, here is the thing. So even crazy people that believe in debt are saying don't do it, aren't they, George? Yeah.

Yeah, Credit Karma came out and said, this is probably a bad idea. If Credit Karma is saying don't borrow the money, this tells you don't borrow the money. I mean, this is like Jack Daniels telling you not to drink bourbon. Okay? I mean, it's some bad bourbon, right? It's got to be bad. Oh, my gosh. And I looked into this.

Your income has to be less than 80% of the area median income. And so they're saying if you're broke enough, you can then afford all of this. And like I said with the numbers, housing in California not cheap. So even with the borrowed money, they're allowing people to borrow way more to get into homes they can't afford. Okay, so these are less than 80, so you're eight-tenths of the median, the middle income of the area. To qualify. So this is middle-income or lower middle-income people only that are going to get in this trap. Yeah.

Which are the people that can't get our house. Oh, God, you don't get our house. Listen, I'm making fun of you because I know how your brain sounds. I know that some of you have a valid concern about buying a home in this market. It's scary out there. House prices have shot up like crazy. All the indications of all the data from the industry is it's going to calm down. No, it's not going to come down.

It's going to calm down. And data that George and I saw on a meeting yesterday was that in 2020, house prices went up 32%. In 21, they went. up, what was it? 18? No, it was 14, I think. Okay.

And they're expecting them this year to go up 7%. So it's slowing down. So the rate of, and the average house price year is about 4%. Okay, over the last 25, 30 years. So we've had this huge spike post-pandemic. The spike is tapering off. There will continue to be an appreciation, an increase in value, but it will be more reasonable. And no, you're not going to get priced out of the market if you continue to grow your

career. You continue to manage money well. Are you going to buy a house right now? Probably not. You might be too broke to buy a house right now. You might be too broke to buy a car right now. You might be too broke to go on vacation right now. So don't do it. But Dave, I got to live my life. Yeah. Yolo, baby. Yolo. I'm serious. All this stuff is temporary. And so calm your butt down. Don't use the emotions of the current inflationary cycle. to cause you to dive off the deep end into a pool with no water. It's just don't do it. Don't do it.

Calm down. All right, folks, you're probably getting the idea that buying a home involves a lot more than just clicking through some pictures online. Because if you sign the dotted line on a new home and you're not ready financially, you're not ready emotionally, that house is going to end up being a curse instead of a blessing. It will wind up owning you instead of the other. way around. But when you're ready, a home can be a blessing for your family and be a great way

to build well. Thanks for listening today. Share this with the people you know who have a case of house fever. And don't miss the next episode to learn how much house you can really afford.