Can you afford to be a homeowner? Between increasing interest rates and inflation affecting home prices, it is economically a difficult time to buy a home. However, it is not impossible. Continue reading to find out if this is a great time for you to jump into the real estate market.
Do you have debt?
As soon as you saw Dave Ramsey’s face, you had to know that debt would play a role in answering the question—Can you afford to be a homeowner? Debt keeps you from realizing your dreams, including homeownership. Free up your income by paying off your debt. Check out his website for step-by-step instructions and tips to become debt-free.
Do you have an emergency fund?
Ramsey Solutions recommends starting with a one-month emergency fund. Then increase the amount in your fund to three months and work on building it up until you have six months of emergency funds saved. To find out more about emergency funds, click here.
In short, an emergency fund is money saved for unplanned events in your life. Having funds already put away for such a time enables you to cover the costs while not charging up a credit card or going into debt. Inevitably, there will be unplanned costs associated with homeownership. Therefore, having a well-stocked emergency fund enables you to navigate “emergencies” without sinking your financial ship.
Do you have money for a down payment?
Ideally, you would save up twenty percent of the cost of your prospective home and put that amount down. This allows you to not waste money on Private Mortgage Insurance (PMI) as well as lower the amount owed on your new house. Of course, you can put less money down but you will have to factor in the cost of PMI into your monthly bill.
Do you understand the formula?
Dave Ramsey recommends that you not spend more than twenty-five percent of your take-home pay on your home. This means that your entire housing payment should not be more than 25% of what you bring home. To be clear, your housing payment includes mortgage principal, interest, home insurance, property taxes, PMI (if it applies), and HOA fees. Most people balk at this formula, but according to Dave, it is the best way to determine if your house will be a curse or a blessing.
Do you have the right real estate agent?
After thinking through the above questions and if you can afford to be a homeowner, then now is the time to jump into the real estate market. Dave does not see home prices falling nor does he see home values dropping. He only sees them going higher. Therefore, now is the right time to buy IF you can afford it. However, he recommends working with an experienced real estate agent to navigate the process.
Mike Goins is a Ramsey Trusted Pro. Consider hiring him to help you buy, sell, or lease. Whether it is your first home or you are a real estate investor, Mike can help you navigate the current real estate market. He is also a lake expert with Lake Homes Realty. His almost two decades of experience are invaluable. Contact Mike.
Hopefully, you now know whether or not you can afford to be a homeowner. If you can, then start looking with confidence. If not, it is okay. It is not the end of the world. Sometimes you need to work towards the dream a little longer, but now you know the steps you need to take to move forward. And, now you’ll know when you can afford to own a home.