It is definitely a buyer’s market in most of the nation – including my community. I currently own a home and I’m looking at moving in the summer of 2012 after we’re through Baby Step 3 but looking at the prices of houses right now, I wish I was in a better position to buy. Actually, this is part of the motivation that is keeping me going gung ho on BS2. I want to take advantage of this buyer’s market. Sure, I’m also selling in this market but I got in before the bubble and ultimate burst so I’m OK. One question I find myself asking is how much house I’ll be able to afford when it comes time to move. Dave Ramsey also weighs in on this question where he discusses how there is no one answer to the question “How much house can I afford?”
There is no magic dollar amount for the “perfect home.” How much house you can afford is as unique as you are and is based on many factors—your location, income, savings, personal preferences, and most importantly, the house-buying plan you have in place.
Before you consider buying a home, you should be debt-free and have three to six months of expenses saved in addition to your down payment (more on that later). Being debt-free with money in the bank will keep you from losing your home in the event of a job loss or illness.
Of course Dave Ramsey advocates for the 100% down payment plan but will agree to a mortgage with at least a 20% down payment with a monthly payment on a 15-year loan that is no more than 25% of your monthly net income. So if you net $10,000 a month, you should not pay more than $2,500 per month on a 15-year mortgage note.
In some areas of the country, this may prohibit many people from buying a home. This is where personal is put into the phrase personal finance. Dave has a long history in real estate and has counseled many people on their own personal finances and I totally trust his judgment.
What do you think about these guidelines? Are they realistic in your situation?
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