Dave Ramsey Said You’re Ready to Buy a House if These 7 Things Are True — but You Don’t Necessarily Have to Check All These Boxes

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Dave Ramsey has a list of recommendations before you buy a home. Keep reading to learn whether you really need to accomplish all these objectives first. 

If you are thinking about buying a house, you don’t want to jump into the process of searching for a mortgage and visiting open houses until you’ve made certain you are ready to do so.

Finance expert Dave Ramsey recommended seven steps you should take first. But, while some of his recommended steps are good advice, you don’t necessarily need to do every item on his list.

Here’s what Ramsey suggests, as well as some advice on which steps are worth following.

1. Pay off debt and prepare for emergencies

According to Ramsey, you should be debt-free before buying a home. This includes not just paying off credit cards, but also lower-interest debts, like car loans, as well. He also says you should have an emergency fund, which is three to six months of living expenses in the bank.

Ramsey is right about the emergency fund, as homeownership is expensive and you want to make sure you’re ready for surprise expenses and also prepared to cover your mortgage payment if your income falls.

But, you absolutely do not need to be free of all debt before buying a home — and you could spend many years renting if you try to hit this goal. As long as you don’t have high-interest consumer debt and you keep your debt-to-income ratio below the recommended amount (typically, debt payments should be 36% of monthly income or less, including housing costs), then there is no reason not to move forward with buying. After all, you could be paying on your car loan or business loan for years and losing out on the chance to build equity that whole time.

2. You have money to put down

Ramsey also suggests putting off homeownership until you have a minimum of 5% to 10% to put down (as a first-time buyer), and ideally closer to 25%.

He’s right about this, but he’s wrong about the kind of mortgage you should get after making this down payment. While he recommends getting a 15-year loan, you’d be needlessly committing to a much larger monthly payment if you took this approach when you’d be better off with a 30-year loan.

You can invest the extra you have left over with smaller payments and end up earning a higher return than you would with early mortgage payoff. Or, if you want, you can choose to pay off your loan early, but you won’t be trapped with a huge payment if it turns out you can’t afford to pay extra some months.

3. You’re prepared to cover monthly costs

Ramsey said not to buy until your “budget can handle house payments,” which includes both your mortgage loan and other expenses like property taxes, insurance, and home maintenance.

This is good advice from Ramsey and, in fact, you may want to practice making your mortgage payment to be sure you’re really ready. To do that, if your rent is $1,000 a month and your housing costs (including saving about 1% of your home’s value a year for maintenance) would be $1,500, then pay your $1,000 rent and transfer $500 to savings at the same time. Do this for six months to see how you really feel about making those higher payments for years to come.

4. You’re ready to cover closing costs

Ramsey also advised that you aren’t ready to buy until you have saved 3% to 4% of your home’s value to cover closing costs. This is good advice, too.

These expenses are often surprising for many first-time buyers, and you don’t want to end up having to borrow for them and pay them off along with your mortgage loan as this would significantly increase their costs. Remember, you’d be paying interest on the closing expenses for decades.

5. You’re prepared to cover moving expenses

Ramsey said it’s important to be ready to pay for moving expenses with cash before buying a house and he’s right about that too. Moving can cost a surprising amount, and the last thing you need to do is to end up in debt right before you take on the responsibilities of homeownership.

6. You aren’t planning on moving anytime soon

According to Ramsey, you should be ready to stay put for five years before you commit to purchasing a home because otherwise you are likely to lose money due to the transaction costs you incur.

“It usually takes at least five years for a home’s value to grow enough to keep you from losing money when you resell it.”

He’s right it’s not a good idea to move soon after purchasing, but a five-year commitment is on the longer side of this recommendation. If you’re going to be living in one place for at least two to three years, then buying may not be the worst choice — especially if homes in your area tend to go up in value quickly.

7. You’re represented by a real estate agent

Finally, Ramsey said you need to make sure you have a trusted real estate agent before you buy.

For many people, having an agent does make sense since your agent can help you to negotiate an offer and do your due diligence when buying a property. Experienced buyers don’t necessarily need an agent, especially if they have a lawyer look over their sales contract, but since the seller pays commission to the buyer’s agent, there may be little to lose by having this advocate on your side.

Ultimately, you need to make the choice about whether you are ready. While you should be sure to check some of these seven items off your to-do list, only you can know if you’re in a good position to make the commitment homeownership requires.

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