Dave Ramsey says you shouldn’t buy a house until you’re sure where you want to live. here’s why
There are some disadvantages you might encounter when renting a home rather than owning it. For one thing, you’ll be at your landlord’s mercy when things break and you need to fix them. And also, you never know when your landlord might decide to sell the house you live in, thus forcing you to move.
Also, when you rent, you don’t pay your own mortgage, you pay your landlord’s. And while you get a roof over your head, you don’t get the benefit of building equity in a place of your own.
But even if you’re eager to buy a house, you really should only do so if you’re willing to stay in one place for a while, says Dave Ramsey. Otherwise, you risk losing financially.
You must make this commitment
If you’re ready to settle down and put down roots in a specific neighborhood, it’s worth buying a house there if you can manage the costs involved. But if your plans are changing, then Ramsey says it’s a better idea to keep renting.
Buying a home means making a huge financial commitment. It also means investing money in the closing costs of a mortgage (assuming you’re financing the purchase of a home, which most buyers do).
Mortgage closing costs can easily be 2-5% of your loan amount. So, for a $400,000 mortgage, you might be looking at closing costs of $8,000 or more.
During this time, it usually takes a few years for homes to appreciate in value. So you’ll want to make sure that you intend to stay in your home long enough to recoup your closing costs and at least break even, if not come out a winner.
Say you buy a $400,000 house and spend $15,000 on closing costs. If you then decide to move out and sell your home in a year, you might only receive the same $400,000. If you wait a few years, it could be worth $430,000, in which case you would have the opportunity to recoup your closing costs.
Also keep in mind that home values can also drop periodically. If a recession hits a year after you buy your home, you may find it’s worth less than you paid for. But if you intend to stick around for the longer term, you can ride out a recession.
That’s why you should generally plan to be in a home for several years before buying it, according to Ramsey. If your plans aren’t certain, it’s not worth spending the money to buy a home, especially if you can find an affordable rental instead.
Find the right timing
Maybe you’re not sure where you want to settle down because you’ve just started a new relationship and you want to see where it goes. Or maybe you recently graduated from college and think you’ve found a great career path, but haven’t invested a lot of time in the job market yet.
These two, among others, are good reasons to keep renting. Most importantly, keep renting if the area you currently live in is one you could see yourself leaving in a few years. It’s a great idea to buy a house once you’re in a specific area, but until you reach that point, renting could really pay off financially.
The Best Mortgage Lender in Ascent in 2022
Mortgage rates are at their highest level in years and should continue to rise. It’s more important than ever to check your rates with multiple lenders to get the best possible rate while minimizing fees. Even a small difference in your rate could reduce your monthly payment by hundreds.
This is where Better Mortgage comes in.
You can get pre-approved in as little as 3 minutes, without a credit check, and lock in your rate at any time. Another plus? They do not charge origination or lender fees (which can reach 2% of the loan amount for some lenders).
Read our free review
We are firm believers in the Golden Rule, which is why editorial opinions are our own and have not been previously reviewed, approved or endorsed by the advertisers included. The Ascent does not cover all offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.