How to Buy a Home Without Going Broke

	By: Dave Ramsey - published in Dave Ramsey's Real Estate Minute Newsletter
	Don't forget to build long-term costs like repair and maintenance into your budget when buying a home.

 

Buying a home is one of life's most exciting milestones, and it's a major cornerstone of the American dream. But according to the National Association of Realtors, even though most people consider home ownership a good financial decision, 43% feel strained by their monthly payment. Nothing kills the dream quicker than feeling like your home owns you! Fortunately, with a little foresight and budgeting, you can turn your home ownership dreams into an affordable reality. The Good Faith Estimate You Won't Get Once you apply for a loan, you'll receive estimates for things like closing costs, homeowner's insurance and property taxes. While these costs certainly add up, they're usually easy to work into your budget with a little planning. And as long as you can make that monthly payment, you're good, right? Wrong. Actually, closing costs and the monthly mortgage payment are just the tip of the iceberg. Homebuyers often overlook the long-term costs when determining how much home they can afford. Experts estimate that homeowners spend between 1–4% of their home's value on maintenance and repair annually. For a $200,000 property, that translates into $2,000–8,000 on average every year. There's no landlord to call when Murphy moves in. If it can go wrong, it will—and it's all on you to foot the bill. That's why it's important to budget for the "what-ifs" like clogged gutters, leaky pipes or the A/C going out. A qualified home inspector should examine the property before you buy so you can make an informed decision. Just keep in mind that a home inspection can't predict every problem that may pop up down the road. Get Your Financial House in Order So how do you ensure your home is a blessing and not a curse? Start with a rock-solid financial foundation. If you're not out of debt with a fully funded emergency fund, you're not ready to buy a home. Period. It doesn't matter if it's a buyer's market and you can get a great deal on your dream home. A bargain's not a bargain if you can't afford to keep up with the upkeep. Make your emergency fund your best friend, and you'll be Murphy's worst enemy. And if you really want to make Murphy mad, buy your home Dave's way with 100% down. That's right—pay cash for your home! If you do get a mortgage, you should put at least 10% (preferably 20%) down on a 15-year fixed-rate mortgage. Keep your monthly payment to 25% or less of your monthly take-home pay to give yourself a little extra room for whatever comes your way. Don't forget to set aside a portion each month to cover standard maintenance expenses like yard work and appliance replacement. Looking to Buy a Home? Finding the right home can be the most difficult step for many homebuyers. Dave recommends working with an expert real estate agent to guide you through the process. If you don't have a pro you can trust, try one of Dave's real estate Endorsed Local Providers (ELPs). Contact your ELP today!