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Home Buying

Am I Ready to Buy a House?

So, you’re asking yourself, Am I ready to buy a house? That’s a smart question to answer before making one of the largest financial decisions of your life. You’ve dreamed of owning a home for as long as you can remember. But lately, your dream’s been more like a driving force than a twinkle in the eye.

There’s just one problem: Median home prices are now in the $400,000 range, and you’re not sure you’re ready to take on a purchase that large, not to mention all the responsibilities that come with homeownership.1

If that describes how you feel, you’re on the right track. The truth is you’re ready to buy a home, first and foremost, when you’re financially ready—not because your friends are buying, or your family is pressuring you to buy, or even because you keep hearing rumors that the housing market is about to crash 2008–09-style. (Spoiler alert: It’s not, so relax.)

So how do you know you really are ready to get the ball rolling on buying a house? This handy checklist is a good place to start.

You’re Ready to Buy a Home If . . .

If you can say, “Heck, yes!” to each statement below, then pack your bags, baby—you’re ready to buy a house!

1. You’re debt-free with a healthy emergency fund.

If you’re familiar with the Baby Steps, you probably already know we want you to have zero debt and a big fat emergency fund before you buy a home. Why? Because the expenses that keep people from saving for a home purchase are all debt-related: student loans (51%), credit card debt (45%) and car loans (38%).2

See how much house you can afford with our free mortgage calculator!

Plus, trying to pay emergency homeownership costs (which come to an average of $1,640 per year and cost around $1,400 per emergency) with a bunch of other debt payments weighing down your budget will put you one roof leak or HVAC meltdown away from bankruptcy or foreclosure.3 That’s how your home ends up being a curse instead of a blessing.

So, before you buy a house, buckle down and knock out your debts as fast as possible. Once debt’s a distant memory, get busy stockpiling money in an emergency fund—enough to cover 3–6 months of expenses. Then your budget will be secure and you can focus on saving up a down payment (more on that in a minute).

2. You can afford monthly house payments and home maintenance.

The next sign you’re ready to buy a house is when your budget can handle house payments. Your monthly house payment should never chomp away more than a fourth of your take-home pay—otherwise, you’d be what’s called house poor. To make sure that doesn’t happen, here’s what’s included in that 25% limit:

  • Principal: This is the original amount of money you borrow from your lender to buy a house. It’s the main thing you want to knock out fast as you’re making house payments.
  • Interest: Lenders are interested in letting you borrow their money because they make a profit on what they loan you by charging a fee called interest—calculated as a percentage of the principal.
  • Property taxes: Local governments raise money through property taxes to fund things like schools, law enforcement, fire departments and (supposedly) fixing potholes.
  • Homeowners insurance: Sure, homeowners insurance adds more dollar signs to your house payment. But paying for coverage will be way less expensive than trying to replace all your stuff out of pocket if your house ever burned down. 
  • Private mortgage insurance (PMI): PMI is a fee you pay on top of your mortgage if your down payment is less than 20%. It goes toward protecting your lender (not you) from losing money if you stop making payments on your loan.
  • Homeowners association (HOA) fees: Basically, HOA fees are for community maintenance and upgrades. If you buy a house in a community that has an HOA, you automatically become a member and will be expected to pay the fee and keep your home up to HOA standards to help increase the overall property value in that community.

To see what these monthly payments might look like for you, use our mortgage calculator. Remember, if the monthly house payment is more than 25% of your take-home pay, take it as a red flag that you’re just not ready to buy a house yet—or try finding a cheaper house or saving a bigger down payment to make the numbers work.

Besides monthly mortgage payments, you’ll also be on your own when it comes to things like home maintenance. When you’re a homeowner, there’s no more calling up the landlord to fix the plumbing. It’s up to you to either fix it yourself or budget for a pro to fix it for you. Home maintenance projects for single-family homes cost an average of $4,886 per year.4 So make sure you have room for it in your budget.

3. You have a good down payment.

The best way to buy a home is to put 100% down (trust us, it’s possible). If paying cash for your home isn’t in the cards for you, you’ll at least need to make a good down payment.

While a 20% down payment is ideal since it means you’ll avoid PMI payments (and you’ll end up borrowing less), a 5–10% down payment is okay—especially if you’re a first-time home buyer. Just plan to pay that pesky PMI, and work on getting rid of your PMI as soon as you can. Remember: The more you put down, the less you have to borrow, and the sooner you’ll be debt-free!

For a simple plan on how to save up a big down payment fast, download our Saving for a Down Payment Guide.

If you do decide to go with a mortgage, choose a 15-year fixed-rate conventional loan—no FHA, VA or 30-year loans. You’ll pay less interest over the life of the loan and be out of debt twice as fast! Our friends at Churchill Mortgage can walk you through getting preapproved for one.

4. You can pay your own closing costs.

Some home sellers cover closing costs to sweeten the deal—but don’t bank on it, especially in a market like this one. On average, the buyer’s portion of closing costs can range from 2–6% of your home’s purchase price, but most states are on the low end of that range—about 2–3%.5 For a $250,000 home, that’s anywhere between $5,000­–7,500 to cover items like:

  • Loan origination fee
  • Home inspection
  • Appraisal
  • Prepaid property taxes and mortgage insurance
  • Title insurance
  • Recording fees
  • Underwriting fees

Saving 3–4% for closing costs is a good rule of thumb—just to be on the safe side. But you’ll get a better idea of what your costs will be when you receive a loan estimate form from your lender after you apply for your mortgage. Just be aware that these can change before it’s time to close on your home.

You should receive your final closing disclosure form at least three days before closing. Review it carefully for unexpected cost differences and ask your lender to explain any charges you don’t understand.

5. You can cash flow moving expenses.

Don’t forget: Buying a house also means you’ll be moving! So make sure to have a separate pile of cash saved up just for moving expenses. Hiring movers can cost about $900–2,400 (for a local move).6 Or it can be as cheap as a few pizzas to bribe your friends with trucks to help—if they have the cargo space.

Besides the heavy lifting part of your move, here are other expenses to be ready for:

  • Boxes, bubble wrap and other moving supplies
  • Deposits for utilities
  • Cleaning supplies
  • Appliances that aren’t included in your home purchase
  • Any pre-move-in upgrades like painting, new furniture and closet organization

While you wait for your closing date, get good estimates for what these costs will be—request quotes from moving companies, shop for appliances, etc. Pad your move-in budget a bit so things go as smoothly as possible, and don’t let new-home excitement cause you to overspend on items you don’t need right away.

6. You plan on staying put for a while.

Okay, another thing to think about before you’re ready to buy a house is if you’re at a place in life where you’re ready to stay in your city for more than a year or two.

Research shows that the longer you stay put in your home, the more equity you build (equity is how much your home is worth, minus how much debt you owe on it). One way you do that is by paying down your mortgage. But you also build equity as the value of your property increases.

For example, you could buy a house this year for $250,000 and sell it in five years for well over $300,000—simply because you took care of the house and the neighborhood remained popular. Of course, property gains can be slashed by market crashes (but that’s super rare, and with the market the way it is right now, that doesn’t look likely). Let’s take a look at how the amount of time spent in a home impacted the home’s value for the owner last year:

Time in Home

Home Value

Increase

2 to 3 years

19%

4 to 5 years

31%

8 to 10 years

54%

21 years or more

162%7

As you can see, the longer you stay in your home, the more cash you get when you sell.  

So if you only plan on staying in your city for another year or so, now might not be the best time to buy a house. All the up-front costs and work you’d put into getting a house probably won’t be worth the value you’d gain by living in it for a short amount of time. But if you love your city and plan to stay put for at least five years, buying a house is a great investment!

7. You have an expert real estate agent you can trust.

It’s not easy to find a house you love that’s also within your budget—that’s why nearly 90% of all home buyers work with agents who eat, sleep and breathe real estate to purchase their home.8 Plus, having a buyer’s agent by your side brings two big benefits:

  • Save money. In most cases, the home seller pays the commission for your agent—so you pay nothing to get expert help! Even better, a buyer’s agent can save you thousands of dollars on your dream home by fighting for your best interests at the negotiation table.
  • Save time. Without a buyer’s agent, you’ll have piles of paperwork to wade through. Life’s too busy for that! Let an expert who knows all of the laws and regulations specific to your city take care of the red tape for you.

The only problem is there are plenty of dud real estate agents out there. So, to feel truly ready to buy a house, work with RamseyTrusted agents who are part of our Endorsed Local Providers (ELP) program. We make it quick and easy to find top-performing agents in your area who have tons of experience helping buyers like you get the home of their dreams.

Find a top real estate agent today!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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