Personal finance radio personality Dave Ramsey believes there is one critical mistake to avoid when buying a home.
There are other pitfalls to steer clear of, to be sure, but one stands out above all others, he said.
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Don't buy a house when you are already in debt, Ramsey advised.
"Debt weighs you down," he wrote, according to Ramsey Solutions. "If you're trying to buy a home while you're forking over hundreds (or thousands) of dollars every month on debt payments, you'll run into one of two big problems."
"Either it’ll take you forever to save a down payment, and you’ll wind up taking out a bigger mortgage so you can speed up the process, or you’ll struggle to make your mortgage payments on top of your student loans, car loans or credit card bills -- putting you one emergency away from missing a house payment," he wrote. "Heck, you may even run into both of these problems."
Ramsey said that trying to pay a mortgage while juggling other debt "is like trying to run a marathon with weights chained to your legs."
"Making it to the finish line will be a struggle, and you’ll end up way behind on your other money goals -- like retiring, traveling or paying for your kids to go to college debt-free -- because all your income will be tied up in debt payments," Ramsey said. "Instead, push pause on the house for now and dump the debt that’s holding you back."
There are other mistakes to avoid as well, Ramsey said, such as buying a house you can't afford.
Many home buyers find a house they love that is more expensive than they initially planned to spend. So they take out a larger mortgage than they intended.
"Bad idea!" Ramsey wrote. "Taking on a bigger mortgage than you can afford is like dropping an atomic bomb on your finances. You’ll wipe out all your other money goals (say goodbye to that vacation you planned). You may even struggle to pay bills and put food on the table. That’s not what you want. When life happens, you need some wiggle room in your budget!"
Ramsey suggested that a monthly mortgage payment should be 25% or less of your take-home pay.
The radio host and author also advised against making too small of a down payment.
"Lenders often push home buyers (especially first-time buyers) toward mortgages that require little to nothing down. The problem is, you’ll pay thousands of dollars in extra interest and have a super high monthly payment," Ramsey wrote. "Don’t make that home-buying mistake! Saving for a down payment is more work up front, but it’ll save you tons of money long term."
A good number to aim for is to put 20% of your home's value in a down payment, Ramsey said.
"That may seem like a lot, but putting that much down means you won’t have to pay private mortgage insurance (PMI)," he said. "Those monthly fees can add up quickly, and you’re only paying to protect the lender in case you stop making payments -- it’s not insurance for you!"
Ramsey listed a number of other mistakes to avoid when buying a home, including:
- Getting the wrong mortgage
- Skipping mortgage preapproval
- Assuming you need a credit Score to get a mortgage
- Asking someone to cosign your mortgage
- Buying mortgage points
- Shopping without a real estate agent
- Choosing style over structure
- Ignoring resale value
- Buying a home without an inspection
- Sticking with a bad deal
- Keeping closing costs and moving expenses out of your budget
- Taking on credit while closing
- Forgetting about title and homeowners insurance
- Being unprepared for ongoing homeownership costs
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