Real Estate the Ramsey Way - When in the Baby Steps Can I Buy a House?

Episode Date: November 10, 2025

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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 homeownership with confidence. Sterling in Austin, Texas. How are you, Sterling? I'm doing good. How about you? Better than I deserve.

What's up? So we are on, my wife and I are on Baby Step 2, and I was wondering, according to the Baby Step 2, and I was wondering, according to the Baby steps, when should we purchase a house? We call it 3B. After baby step 3 is in place, you're debt free, and you have an emergency fund of three to six months of expenses, then start saving for your down payment in 3B. In other words, between 3 and 4, if you want to not start retirement savings for a short period of time and use that time to build up your down payment, that's when we would tell you to do it. Okay, that makes sense. We,

are sadly about to have to go back into step one because of car repairs. But then after that, we're going to be back to step two. And so we're thinking about the future and trying to, you know, look at the market and see when, you know, we can save up for a down payment. Yeah, we want to get you in that. That's perfect. So how much debt you got left, Sterling? It's still a lot. Right now, I want to say. it totals to $109,000 with all the student loans, all my student loans, and then we both have two car loans, and then we have one personal loan.

Yeah. What's your household income? Together we make about $120,000 a year after taxes. Cool. What's the most expensive car loan? That would be my truck at $26,000. Okay. All right.

Cool. It sounds like you got a good plan. If you want to speed up the house, you jet the truck. I've been considering it. I've really been considering it. Right now it's been giving me a lot of problems. I have a friend who says the one thing that's worse than either parts or payments is having parts and payments when it comes to a vehicle. That's a good saying.

And yes, you can thank Robert Looney for that one. He's told me parks and payments are unfortunate. one of the worst things you can have. And right now my truck has been giving me both problems, and I've been really debating about getting rid of it. Yeah, if you could get 26 and you probably can, you probably get close to that for it, depending on what it is.

It gets you out of a fourth of your debt and speeds the purchase of the home, which goes up in value, and the truck goes down in value. I'm not against having a nice truck. I'm just always trying to figure out a way to get to my goal faster. Yes, sir. I was doing some kind of estimation with on every dollar.

And it looks like after all the bills and other things that my wife and I are about to cut out because we're deciding we really don't need. We have about $3,500 left over. Yeah, it's about a three-year plan. And so we're going to start really cutting things out and try to get that close. to $5,000 left over every month or at least $4,000 and then really start paying things to make it a two and a half to three year plan. Yeah, and it'll be, and the truck payment is how much? The truck payment is $7.12 and it's like a 3.9% interest rate.

Put yourself in a hoopty and run the numbers with that extra 700 on there, and that's what, you'll see what I'm talking about then. That's cool. Hey, man, you're doing great. I'm proud of you. Can't wait to hear you do your debt-free scream. Good job. 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 you. 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. Let's go straight to the phone lines. We've got Seth. He's in Portland, Oregon. What's going on, Seth? Yeah, hi there. Thanks for taking my call, big fan, first time caller. I am 45 years old. I have about 690,000 in my 401k, and I owe about 460,000 in my house. I would like considering paying off the mortgage, living life, completely debt-free, and then reinvesting the monthly mortgage payment into mutual funds, stocks, IRAs. Along those lines, I know the taxes and fees are significant, but so is living life.

life that's free without a mortgage payment. So I wanted to hear your thoughts. So you're talking about taking the money out of your 401k at a penalty to do that? Yeah. Oh, no, I definitely wouldn't do that. Why are you feeling, why are you feeling the rush? Tell us more. Well, I think I'd just like to not have the mortgage payment there and be able to have the freedom to do more investing with the same money every month, essentially. Yes, yes, but you're taking, I mean, I, I, I, I have not run the numbers on this, but you would be taking such a hit plus the penalty and that time, that amount of money over time what it could have been versus you investing just your mortgage payment. Does that make sense? I'm thinking about that. Tell me,

have you run, like, tell me about the numbers you've run. Or is this just a piece play? No, I've kind of run them a little bit. I ran up by my tax accountant. She said it would cost. me probably some of the neighborhood of about another 50 grand maybe to pay off the taxes and fees and penalties involved. So we'd have to take out probably some of the neighborhood of flat-harned, maybe. She's not thinking about opportunity cost of that month, the growth of that money over time. Have you plugged that into an investment calculator to see what half a million left alone if you don't want to add anything to it for the next 20 years, from 45 to 65, what that'll amount to? I'll do it. Jade's going to crunch the numbers. Let me talk to you while she's doing

that, I want to talk about this mortgage. It sounds to me like maybe you bid off more house than you could chew. Is this mortgage payment a big chunk of your take-home pay? Take-home's about 11, and the mortgage payment's about three. So... Okay, that's reasonable. We recommend 25%. You're a little above that, but nothing's on fire. Why not just chip away at it every single month with as much as you can throw? So if you're investing 15% of your income to retirement, how much extra could you throw at the mortgage? That's a good question. Maybe, yeah, maybe a few hundred.

Only a few hundred bucks is the margin you have on 11 grand? Well, there's a lot of things in the budget. And I have four kids, a couple of them starting college fairly soon, so I'm doing some saving on that side of the things. Okay, are you helping them cash flow college? Yeah. Okay. When will that end, the season of trying to get to the kids through college?

Well, I've got one who's in now, and he's got probably three years left, and then I've got a 14-year-old who will probably start in four years, so we're probably nine or so years away from that. Okay, and have you been investing money into a 529, or is this just straight savings and cash-flowing payments from each paycheck? Yep, just serving where we can as we can into more of a traditional savings. Can I jump back real quick? Seth, you may have said this, but let's pretend that you did your deal and you took this money

paid off your house. How much would you be investing every month at that point? Because I just want to line this up for you. Um, probably similar the neighborhood of the 3,000, I would think. Yeah. Okay. So let's just run this comparison side by side. Um, if you were to keep the money where you have it and put 1,500 aside every month, you'd end up with around 4.5 million, right? If you were in that account, if you were to drop it down to zero and just say, I'm going to invest $3,000 for the next, the same, the same term. 10 years at the same rate of return, it would be 2 million, 2.2. Do you see what I'm saying? So that's a big, it's a big drop off.

It's a big difference. Uh-huh. So I hope that kind of mathematically frames up the equation here. Yeah, I think you've got good intentions and heart behind it. You're not trying to do something frivolous or stupid, but nothing is worth giving the government an extra 35% of my retirement and unplugging all of that growth just to have a paid four house. And trust me, I want you to have a paid four house. But I would find other ways to do it with future income, savings, anything else you can do. And you're going to make more money over time.

The kids will get through college. And so you'll be in a season where you can throw a few grand out out of your 11K take-home pay toward the mortgage and get this thing knocked out. So what I would do is sit down. You have a wife? Yeah. I would sit down with her and go, hey, we want to pay this thing off. Let's have a six-year, seven-year, eight-year plan to get rid of this mortgage. Here's what that looks like. And year one might be slim because the kids are going through college. Year four, maybe we're putting away 50 grand a year at the mortgage. Maybe more. So I use our mortgage payoff calculator and start crunching the numbers. That's the tool I would rather you use to figure this out versus looking to the 401k or any other retirement plan. And as a reminder for anyone out there,

if you withdraw funds in most cases before 59 and a half from these retirement accounts, the IRA, the 401K, you will be dinged with a 10% early withdrawal penalty on top of. of the full income taxes, maybe state income tax as well. So I, you know, just crunch the numbers. You could lose half your money from this retirement account. You pull out 200, you pay 100. I would say that was a bad trade. Yeah, that's not good.

It's not good. Listen, he's trying to solve for peace. I get what he's trying to do, but it just was the wrong method. Thanks for the call.