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Home Buying

How to Own Your Dream Home

It takes a lot of sacrifice to get out of debt and secure a solid financial foundation for yourself. Maybe you’ve rented a less-than-ideal house instead of buying one. Or maybe you’ve stayed in a cramped home instead of upsizing your space—and monthly payment.

Soon, though, you’ll look up and realize you’re inching closer and closer to finally buying the home you’ve been working toward—or if you already own one, buying your dream home.

Good news is, you can save for and afford that upgraded home without hurting your financial future. You just have to follow these steps:

  1. Pay off your current home first, or as much as possible.
  2. Find out your home’s current value.
  3. Set your new home-buying budget.
  4. Find the right dream home for you.
  5. Be picky and patient.

Keep in mind that this doesn’t include the financial basics that must come before owning that dream home—or any home for that matter. So, let’s do a quick crash course.

What Are the Financial Basics?

Get out of debt, get on a budget, and build up an emergency fund of 3–6 months expenses. Sounds pretty basic, right? If you haven’t completed these steps, then you’re not ready to start thinking about your dream home.

Find expert agents to help you buy your home.

Now, when you’ve got house-fever, it can be awfully tempting to stash away cash for a down payment instead of paying off debt or saving—especially when you keep hearing about low mortgage rates and stellar deals.

But whether it’s your first or third house, you should never buy a home just because the market is great and every nosy relative keeps reminding you of that. Buy only when you’ve covered the financial basics. Then you’ll be prepared to start the journey toward owning your dream house.  

Step 1: Pay Off Your Current Home First, or as Much as Possible

As your career grows and your salary increases, put any extra money toward paying off the house. Think about attacking your goal of buying a new home with the same intensity and intentionality as you attacked your debt. And don’t forget: Saving money to pay off your home should not replace saving 15% of your monthly income for retirement. That, my friend, never stops.

Here’s how paying off your home can work. Let’s say you started your job making $3,200 a month and bought a home with an $800 monthly mortgage payment (the recommended 25% of your take-home pay). Now, you’re making $5,000 a month. Think about it: If you keep paying 25% of your income toward your mortgage, that amounts to $1,250 a month—an extra $450! With that kind of focus, you could pay off your mortgage in no time.

If you can’t pay off your current home completely, you’ll still want to have as much equity as possible built up before upgrading to your dream home. The more you are able to pay off and put toward your dream home, the more you will be able to comfortably afford.

Step 2: Find Out How Much Equity You Have

In most cases, your home’s value increases over time. That means its current worth is the starting point for your new home. Then, the amount you make on the sale of your current home combined with money you’ve been saving becomes the basis for your dream home search. Yeah, finding out your home’sequity will involve a little math, but it’s third-grade level stuff, so don’t sweat it.  

Here’s what we mean. Let’s say your home’s current value is $175,000. When you sell that house, you’ll have between 2–5% in closing costs and another 6% in fees for the real estate agent who helped you sell it.

$175,000 (home value) - $8,750 (5% closing costs) - $10,500 (6% agent fees)

= $155,750 equity for your new home

That means you can estimate clearing over $155,000 from selling your house—assuming your home was paid off. That’s a killer down payment on your dream home!

Step 3: Set Your Dream Home Budget

Now that you know your current home’s equity, calculate how much home you can afford based on your current salary. We highly recommend keeping the mortgage payment at no more than 25% of your take-home pay on 15-year fixed-rate mortgage. Don’t do a 30-year mortgage even if the bank offers it (which they will). You’d pay a fortune in interest—money that should go toward building your wealth, not the bank’s.

When you set your budget for your new home, you’ll want to account for the typical costs that come with a home upgrade, like higher utilities or HOA fees. And don’t forget to factor in the cost of features you’ve been dreaming of—hello, fancy master suite!  

The last thing you’ll need to budget for are other costs associated with the home-buying process—things like closing fees, moving expenses, and any upgrades or repairs you might need to make. You won’t want these hidden costs to catch you off guard or drain your emergency fund.  

Step 4: Find the Right Dream Home for You

This is where things get real. After all your hard work saving up (and doing a lot of math, don’t forget that) you’re finally ready to start the house hunt. Woo-hoo!

But don’t lose focus. Stay zoned in by making a list of features that make a home fit your budget, lifestyle and dreams—and stick to it throughout your house hunt. Here are a few ideas to get you started.

  • Don’t compromise on location and layout. If you’re hoping to be in this home for the long haul, there’s really nothing you can do about an out-of-the-way neighborhood or a wacky floorplan. Look for a community and layout that will suit your lifestyle now and for years to come.
  • How much space does your family need? While your budget should have the final say on how much home you buy, you’ll want your dream home to fit your family’s needs through different life seasons.
  • Consider the school districts. If you have or want kids, the quality of the nearby school districts is probably already on your mind. But even if you don’t have kids or you’re retired, keep in mind that a home that’s near good schools could increase your home’s value.  
  • Speaking of home value, look for a house that’ll grow in value. Are home values rising in the area? Is the number of businesses going up? These factors can help you figure out whether your dream home will turn into a good investment.

Step 5: Be Picky and Patient

We know you’re anxious to get into those new digs, but be patient. Wait for the right house at the right time. Don’t pick something you’ll want to move out of in a few years just because you’re tired of looking.

The key is finding a good real estate agent who understands your budget and needs and refuses to settle for “good enough.” They’re as committed to your dream as you are and will have your back throughout the entire process, no matter what it takes.

If you want to make sure you’re ready to strike as soon as the right home comes up, there are a couple ways you can set yourself apart from the home-buying competition.

  • Get preapproved for a 15-year fixed-rate mortgage. Having secure financing is a greenlight for sellers—especially in multiple offer situations. And because this puts most of your information in the lender’s system, you’ll be on the fast track to closing once your offer is accepted.
  • Offer earnest money with your bid. Earnest money is a deposit to show you are truly interested in a home. Usually it’s 1–2% of the home’s purchase price and is applied to your down payment or closing costs. And even if the deal falls through, you can almost always get most of it back.

Find a Real Estate Expert in Your Local Market

Now, you may be thinking you have some work to do before you’re ready to go after your dream home. Or you may be realizing your years of hard work are about to pay off! Regardless, if you follow these steps, you’ll find the house you’ve always wanted and avoid a purchase you’ll regret.

Once you’re ready, connect with one of the real estate agents in our Endorsed Local Providers (ELP) program to have confidence in your home search. Our ELPs are high-performing real estate agents who share your values so you can rest easy knowing your dream home is in the right hands.

Find the only real estate agents in your area who we trust and start the hunt for your dream home!

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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