LifeZette has teamed up with Dave Ramsey to help answer some of your most pressing money questions — and few financial questions are more pressing than determining if and when to buy your first home.
Personal finance expert Rachel Cruze helps with this major decision.
Question: If I had to buy a house tomorrow, I wouldn’t know where to begin. What is my first step? Is buying a house always a good investment? What are the cost-benefit scenarios I should consider before buying my first home? Does the situation vary according to the length of time I plan on living there? Is paying a mortgage vs. rent better? Help!
Answer: For most people, buying a home is the largest financial decision they’ll ever make. The key is to know when it’s actually the right time to buy a house. Sometimes you’ll be better off renting for a few years to prepare yourself for the financial reality of a mortgage.
Before you even consider buying a home, I want you to be debt-free with an emergency fund of three to six months of expenses. Buying a house isn't cheap, and neither is maintaining one. You have to take care of the yard, pay the bills and have cash on hand in the event of an emergency.
If something goes wrong, you’re responsible for taking care of it. Gone are the days of calling your landlord to fix it!
Once you’re debt-free and your emergency fund is in place, there are still some things to keep in mind. You want a down payment of at least 10 to 20 percent. It’s also important to get a 15-year, fixed-rate mortgage with a monthly payment of no more than 25 percent of your take-home pay. The payment will be a little more than a 30-year-mortgage, but the interest you pay will be far less.
Sometimes it just makes more sense to rent, such as when you're going through a major life transition.
It might not be the best time to purchase a new home if:
1: You’re fresh out of college and have many other unknowns, such as where you're going to work and if you really have enough money for a mortgage.
2: You're a newlywed, are transitioning to a new life and don't yet know how your household income might fluctuate.
3: You’ve just moved to a new city and aren't familiar with the different areas of town or know which one fits your needs best.
Remember, your goal is not just to buy a house — it’s also to make a good investment. You should never buy a house simply because you can.
If you jump into a mortgage before you’re ready, you could make a major financial mistake that could set you back for years to come.
Rachel Cruze is a seasoned communicator and presenter, helping Americans learn the proper ways to handle money and stay out of debt. She co-authored the #1 New York Times best-selling book "Smart Money, Smart Kids" with her dad, Dave Ramsey.
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