Dave Ramsey explains why its time to buy a house
Here's how you can do it now.
The housing market is famously difficult to predict, but there are a number of factors to consider that can give potential home buyers a sense of current and upcoming trends.
Radio host and bestselling personal finance author Dave Ramsey offers a few data points to examine for people who are looking to buy a home.
Related: Dave Ramsey has blunt words on what to do with your money now
Ramsey looked at a relevant set of numbers from December 2023 compared with those from November 2023 and also from December 2022.
"Here's a quick breakdown of what interest rates, inventory and competition may look like in the new year, (and) what it means for you if you're buying and selling," he wrote in an email to TheStreet from Ramsey Solutions.
First, Ramsey suggested looking at the median national home price in the U.S. It was $410,000 in December 2023, down 2% from November 2023, but up by 1% from December 2022.
Next was the 15-year fixed-rate mortgage (FRM), which clocked in at 6.14% in December 2023, down 9% from November 2023 and up 8% from December 2022.
On the available housing supply, he said, the total number of homes for sale was 714,176 in December 2023. This was down 5% from November 2023 but up 5% from December 2022.
Last in this comparison is the median number of days homes for sale were on the market before closing. That was 61 days in December 2023, up 18% from the previous month, but down 6% from December 2022. Shutterstock
A guide to saving for a down payment
Taking all these data into account, those looking to buy a home early in 2024 can start saving for a down payment now, Ramsey said.
"So, you're dreaming about owning a home," he wrote. "You can already smell a delicious meal being cooked in the sprawling kitchen, hear the sound of a bicycle being fixed in the garage, and see your kids' smiling faces as they play on the fresh-cut lawn. There’s only one thing stopping you from making that dream a reality: a down payment."
"When you see house prices listed for hundreds of thousands of dollars, it may feel like you'll never save enough money to buy one," he wrote. "There's got to be a way to speed up your savings to buy a home. Well, there is! And we'll show you how."
Ramsey advises putting together as large amount of cash for a down payment as possible.
"A house is one of the largest purchases you'll ever make," he wrote. "That's why smart home buyers like you save up the biggest down payment they can to limit the amount they have to borrow and pay off their house as fast as possible."
Ramsey suggests a 'simple' formula
In order to figure out exactly how much house potential home buyers can afford, there is a fairly simple formula Ramsey recommends they follow.
"This is simple math, people," Ramsey wrote. "Just add up your total monthly take-home pay (after taxes) and multiply that by 25%. For example, if your total household income after taxes adds up to $7,000 each month, take 25% of that income to get a maximum monthly payment of $1,750."
He offers more on this example to find out the total price of a home within the set budget.
"Select a 15-year fixed-rate mortgage at a 4% interest rate with a 10% down payment," Ramsey wrote. "Let's also assume your mortgage payment includes a 0.5% PMI fee, 1.1% property tax, a $846 home insurance premium, and an $86 HOA fee. After you test out different prices based on your $1,750 maximum mortgage payment, you find that the maximum home price you can afford is about $200,500."
"But remember," the radio host continued. "This calculation shows you the maximum house price you can afford — meaning you don't want to buy a house above that price. It'd be smarter to find a house below that price to allow room in your budget for ongoing homeowner costs like maintenance and repairs."
Related: Veteran fund manager picks favorite stocks for 2024
What's Your Reaction?
