Radio host and bestselling author Dave Ramsey has a few words on buying a house.
This should be taken, of course, in the context of the Federal Reserve's announcement on Dec. 13 that it would be holding interest rates steady.
Related: Dave Ramsey shares warning about the 'biggest scam in history'
In his statement, Fed chair Jerome Powell didn't exactly declare victory over inflation, but he did hint at rate cuts for next year, which prompted a Wall Street rally.
The U.S. economy has defied expectations. Earlier this year, the talk among financial pundits wasn't about whether or not there would be a recession forthcoming, but they focused on when it would happen.
Now, most are saying that a soft landing is anticipated in 2024.
And recently, on Nov. 30, Freddie Mac reported that the 30-year fixed-rate mortgage dropped to an average of 7.22%, down from the previous week.
In this light, it's worth listening to what Ramsey has to say about investing in real estate now.
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Ramsey explains how to know if you're ready to buy a house
The personal finance personality said buying a home can be a blessing for your family and a good way to build wealth.
But first, Ramsey mentioned that a few important considerations must be in place. For example, he reiterated some points that he makes frequently — namely, he said you must be sure that you are debt-free and have saved up for a full emergency fund.
"Why is it important to accomplish those goals before buying a house?" he asked on Ramsey Solutions. "First off, if you try buying a house while you have debt, it’ll be tough to save up a strong down payment since most of your extra money will be going out the door to credit card companies or Sallie Mae. And if you buy a house without an emergency fund, you’ll have a crisis on your hands when something inevitably goes wrong — think a leaky roof or a faulty HVAC unit."
Then, Ramsey said, it's time to focus on a down payment. He said that a 20% down payment is the ideal amount. For first-time homeowners, this might not be possible. In that case, 5% to 10% might be more realistic, but there are other costs involved if that's all a potential home buyer can afford.
Ramsey also said you need to be sure that you can afford both the monthly payments and home maintenance costs.
"Before you pull the trigger on a new house, add up how much your monthly payment would be and make sure it won’t go past that 25% mark," he wrote, referring to the amount of money you make in your take-home pay.
Ramsey also counsels being ready for closing costs and the cash flow of moving expenses.
He makes a point of emphasizing that you need to be fully sure that you aren't planning on moving any time soon.
"If you're in an area where home values have increased rapidly over the last five years and houses for sale don't spend much time on the market, the math may work out for you to buy instead of rent," Ramsey wrote. "But 90% of the time, renting is the better option if you’re not planning to stick around for long."
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