Many young Americans aspire to buy a home. Financial expert Dave Ramsey and co-host George Kamel recently spoke with 23-year-old Jared from Oklahoma City, OK, about his homeownership aspirations. While they were impressed with his work ethic and savings, Ramsey pointed out that he missed a crucial step: setting up a solid emergency fund.
Jared is single and does “just work” at his pest control job, which earns him about $70,000 a year. He told the Ramsey Show hosts that by mid-January he will have a 20% down payment on a home worth between $150,000 and $200,000 that he has saved. And while he has no debt, he did admit that he doesn’t have an emergency fund.
Don’t miss:
Ramsey applauded Jared’s efforts, but emphasized that an emergency fund is an absolute must when purchasing a home. “You don’t move into a house without an emergency fund,” Ramsey said. “Because houses are an emergency, looking for a place to happen.”
Ramsey illustrated the reality of homeownership: there will always be unexpected repair and maintenance costs. He and Kamel advised Jared to save three to six months of living expenses in an emergency fund for completing the purchase of a house.
“That means you’re now looking at March,” Ramsey said, instead of Jared’s initial goal of buying in January.
See also: Maker of the $60,000 foldable house has built 3 factory buildings, more than 600 homes and big plans to fix housing you can become an investor today for $0.80 per share.
Jared’s goal of a 20% down payment is consistent with Ramsey’s typical advice when purchasing a home — especially since it allows him to avoid private mortgage insurance (PMI), a monthly fee required for loans with smaller down payments. With a $150,000 to $200,000 home, Jared would save thousands over the life of the loan if he met this threshold.
Kamel and Ramsey also told Jared to commit to a 15-year mortgage instead of a 30-year loan. “A paid-off mortgage is one of the keys to becoming a Baby Steps millionaire,” Ramsey said, referring to his widely followed seven-step financial plan.
In addition to financial preparation, Ramsey advised Jared not to purchase a fixer-upper or a home with unique features that could make it more difficult to resell. “Buy something that’s easy to resell, which means it’s a little boring,” he said, noting that such homes steadily increase in value over time.
