The Rachel Cruze Show - The One Cost of Living Rule I Swear By

Starting point is 00:00:01 So it's no secret that today's housing and market is uniquely challenging. So if you're feeling the weight of that struggle, you are not crazy, you are not alone. Now, in our current reality, there are three things that you want to evaluate before buying a home. So we're going to dive into those. But before we begin, make sure to subscribe and share this episode with a friend who you think we'll enjoy it. All right. First and foremost, let's share some stats about the housing market. So NBC, News, it says that according to the Census Bureau data, nearly 30% of middle-class homeowners have monthly payments costing more than 30% of their income. So when it comes to buying a home, you guys, we do talk about that that payment needs to be around 25% of your take-home pay. In an ideal world, that's what you want, so that 75% of the rest of your take-home pay can be put towards things like living expenses, paying off debt, saving up for stuff you need or want, like all of that, right? But when a lot of your income is being taken up by your rent or your mortgage, it gets really hard to win financially. The next stats that I found interesting came from

Starting point is 00:01:13 Zillow. Americans must earn roughly $106,500 in order to live comfortably to afford a home. And that is a significant increase from the 59,000 annual household income needed in 2020. So we know the housing market It went up significantly, the value of homes. And for most places in America, almost all of them, they have stayed at that price. And there wasn't this bubble where everything, you know, popped and went back down to 2019 numbers. They stayed really high, and they are continuing to increase steadily, smaller percentages, but we're seeing that. So when you have such an increase when it comes to the housing market, being able to afford a house in 2025 versus 2019 is going to look and costs very, very different. So I think it's really important to know that reality, and I'm sure a lot of you,

Starting point is 00:02:06 especially if you're looking to buy a home, you are feeling that reality. And I share those numbers, not to stress you out or to scare you, but to validate, again, that homeownership, it's hard. It can be really challenging right now. But I also want you to know that there is hope because people are still buying homes that is reasonable with their income and they're able to do it the right way. It is still happening, but it's having to make some tweaks in places, which is what we're going to talk about. All right, before I share my list, three important things to consider. Let's talk about how to know if you're ready to buy a home. So here's kind of the basis of it all. If you are out of debt, again, if you are a homeowner now,

Starting point is 00:02:43 this means all your consumer debt is paid off, and you have a fully funded emergency fund of three to six months of expenses. Some of you guys have been on this journey for a while, and maybe you're past all of that, or some of you are in the middle of paying off your debts. But if you have not started this process, it's probably going to take you a good three to four years, depending on your debt load, and if you have savings, to get to this place where you are able to start thinking about home ownership. But what we have found time and time again is if you have tons of payments and you have no savings and you go and buy a home, it ends up being a curse, not a blessing, because home ownership is expensive and you want to buy out of a place of peace and

Starting point is 00:03:20 power and control versus feeling like, oh gosh, we just have to get into the market and I just got to buy something regardless of where I am financially. All right, let's talk about three important things to evaluate before buying a home in today's market. So number one is location, location, location, you guys. This is we're going to see the difference, the drastic difference in prices. So if you are in a city, for instance, we're here in Nashville and you get closer and closer to Nashville, right? The suburbs right outside of Nashville or in downtown Nashville, everything is very expensive. It just gets more and more expensive the closer you get to that city. But as you expand and go further and further and further out, prices do start to drop. Again, they are still higher than they were

Starting point is 00:04:02 in 2019, 2020, but as you move out of a city, you're going to probably find more affordable housing. And so remember that for you. If you're going to look to buy a home, maybe you had a dream of a certain location or a certain city, but nowadays, it may not be realistic with your budget, right? And depending on home values and home prices in your area. And so the more you get out of a city, usually means the cheaper the houses start to become. Now, some people also, location, location, location change it completely. I mean, we've talked to a lot of people in the last year or two who say, yeah, we literally moved states, we moved cities completely so that we could have a better quality of life. And gosh, I know that's a big thing to say because moving your entire life and your job and

Starting point is 00:04:49 family and all of that is a really big step. But a lot of people are starting to do that more and more because it's just more affordable to live in certain cities or certain states more than others. All right, before we talk about the rest of the list, I did want to tell you about one of our sponsors, Delete Me. I saw a headline recently that really caught my attention. One third of the U.S. Populations Background Info is now public. So for 115 million of us, data breaches mean that our info is out there for anyone to find. And this is stuff like our names and addresses and phone numbers. And so this is why I love and use Delete Me because they find and remove your information from hundreds of data broker websites that will buy, sell, and trade your personal data. So take control of your online privacy with Delete Me.

Starting point is 00:05:35 Individual Delete Me plans start as low as $9 a month. So sign up today at Join DeleteMe.com slash Rachel for 20% off or click the link in the description. All right, so number two is expectations. So you may kind of have to settle, if you will, for your first home. Because I think sometimes we have this expectation of what the home will look like, should look like, the size, all of it. And it may just look completely different, right? It may be a smaller home, you know, less square feet. It may be an older aesthetic that maybe you redo later.

Starting point is 00:06:10 But you're really going to have to fight the comparison game of your expectations of home ownership. because a lot of people, of course, would die for the perfect house and die for that acre lot that their parents have or their grandparents have. But listen, you have to start somewhere. And if financially you're ready to jump in, I recommend just go ahead and doing it. Because the home you buy, the first home, most of the time, is not going to be your forever home, right? I feel like that was true decades ago where people would buy and they'd live in it for their whole life. And that's great. And maybe that's your case. But we do find that people seem to change homes on average about every five years. And that's whether they outgrow a current house. They move because of a job or family.

Starting point is 00:06:49 But things will change. So your first home does not have to be your forever home. Remember that. And then number three, the third thing to consider are your numbers. So you want to stay conservative when it comes to buying a home. Because again, we see it all the time. People out buy what they should. And then that payment eats up so much of their income or maybe one person, you know, in the relationship if it's a married couple and a family wants to stay home, but they can't because they built their lives around a two-income lifestyle. And so it just can get really, really difficult to make changes and pivots if you have this massive, massive mortgage compared to your income. So when you go to buy a home, if you are a first-time home buyer, the least amount I would put

Starting point is 00:07:30 down is 5%. Okay, that's the least amount. If you go up to 20%, which I know is very difficult in today's world, but you can avoid PMI, which will save you a lot of money over the course of you getting to that point of that 20% down. So anywhere between 5% and 20% is great. Obviously, if you have more than that, go for it. And then your mortgage needs to be a 15-year fixed rate. A lot of people go the 30-year route because their payment's going to be smaller. But getting out of debt as quickly as possible is your goal. And sadly, if you pay over that 30-year period and you just sit there and pay your mortgage payment for 30 years, the amount of interest that you end up paying is hundreds of thousands of dollars depending on your house. It's a lot of money that

Starting point is 00:08:11 just goes to the bank. So the faster you can get out of that mortgage, the better off you're going to be. And then again, your payment should be no more than 25% of your take-home pay. Now, do some people kind of squish these numbers here or there? Yes, absolutely. But again, it is a conservative approach that we take when it comes to home ownership because we've just seen the flip side, the ugly side of it. And it's just not worth it. It's not worth your piece. It is worth lowering expectation, maybe not being in the location you necessarily want to be and making sure your numbers are right to give you peace of mind because that's our key to all of this is build a life of peace, don't build a life of stress. And so this goal really does give you that cushion financially,

Starting point is 00:08:49 which is really important. But to stay on top of the real estate market and all of the updates that are going on in the market, make sure to check out the Ramsey Trust's Housing Market Trends page. I will put a link down below. But it gives you a really simple, high-level glance at the current market conditions, kind of know what you're stepping into. And then for some more insider knowledge, you can just browse through all of that, that whole website, because there's so much information on it. And you can also check out my episode on home upgrades that are and aren't worth the money that's coming up next. And if you're listening on podcast, I will leave a link for that episode in the description. All right, you guys, remember to take control of your money

Starting point is 00:09:29 and create a life you love.

The Rachel Cruze Show - The One Cost of Living Rule I Swear By

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