Posted on 09/02/2009 5:27:12 AM PDT by Kaslin
I graduated from college in May, and I already have a job in my field. It was a part-time position that went full time, so I already have $15,000 in an IRA and about $23,000 in savings. I’m also debt-free, because scholarships paid for my education. Am I ready to buy a house? --Zack
Dear Zack,
You are the man! This is an awesome position you’re in right now!
Financially, you’re okay to buy a house. I do have one slight hesitation, though. There are going to be lots and lots of things happening in your world during the next few years, and there’s a possibility you’ll end up moving—maybe for a girl, or even another job—during this time period. It’s going to be a time of transition, and having a piece of real estate tied around your neck could be a huge pain. But if you’re sure that’s where you want to be for a while, then it’s not such a big deal.
Keep in mind that there’s a word for real estate that sells quickly, and that word is cheap! Lots of times, the only way to get out from under something like that fast is to practically give it away. It’s a great time now to buy a home, though. It’s like they’re on sale. Interest rates are low, too.
Don’t use the entire $23,000 as a down payment on a place, and keep an emergency fund of three to six months of expenses set aside. Make sure you get a 15-year, fixed-rate mortgage, too. If you play this right, Zack, you’re going to be sitting pretty! -—Dave
This economy, I’d say make that emergency fund six to twelve months worth.
I can’t disagree with Dave. I’ve seen a lot of ambitious younger people move five times in five years and it’s not a bad move in getting ahead with a company. Some companies buy homes, but more and more have stopped getting involved with loser real estate.
A total of $23k in savings, advice to just use a small portion of it? Sounds like this is from the Barney Frank school of real estate, of rock-bottom little to no money down and let the government subsidize it because it will bail him out later.
Then your complaint is with the government, not with this borrower.
A down payment of any sort does nothing for the borrower outside of reducing his or her obligation. It might make more sense for a potential borrower to put as little down as possible and hold on to cash for emergencies, which if you own a house, there will be plenty of.
...there’s a good reason that Dave’s show is so popular....folks are sick and tired of debt and they’re paying it off....and that’s why it’s going to be a slow climb back out of this recession...the last “boom” was fueled by easy credit...it made people unhappy and now they’re cutting up their credit cards....as Pete Townsend would say “We won’t get fooled again!”
One small disagreement- take a 30 year mortgage. The required payment is smaller, leaving a cushion that will not be there with the 15 year. Then have it automatically deducted, half a payment every two weeks; that makes 13 payments a year. Prepay some principal with a seperate check a few times a year, and you’ll get a similar net effect to a 15 year. But you need not make the extra payment if things get tight.
Dave is ok but he’s just making a buck off people already in trouble.
Spend less than you earn. Save at least 10 percent. And stay out of debt. Oh and remember banks are not your friend.
Don’t need to buy any books for that.
Me too - I am in BS6!
Yep, we are tired of being shackled with debt. I now have less than $3,000 in consumer debt not counting a mortgage and will pay that amount off in the next two months. Dave Ramsey really rocks!
I was going to say the same thing. If you want to keep that house, better plan on 12 months of savings.
I always agree with Dave but I don’t know of keeping the 23k as a nest egg is the best advice anymore. The way things are going 23k USD could be 2,300 Amero real quick like.
Actually, Dave’s message is a little more robust than that, and I thank God for his message every day. I’ve paid off over $50,000 in 8 years, and I only have $8,000 in student loans left before I’m debt free. I also have my own home, I’m finishing my graduate degree out-of-pocket, and I have money saved up for a wedding in the near future.
Dave is no shill, and while I do agree that his message is mostly common-sense, this man has a much bigger purpose and message than what you’ve boiled it down to. I would advise giving him at least some credit if you won’t buy his books.
He doesn’t placate the idiots who call his show with f-leases, debt up to their eyeballs, and ideas of filing bankruptcy. He uses good, old-fashioned, time tested ideas about saving and investing, and I advise everyone to read his stuff. He’s a good man, IMHO.
Depending on where one lives, $23k might not cover 6 months living expenses, particularly a family. It’s a lot of money to me, but again depending, it might not be a bad idea to rent in this case too, and save more money.
We have a stack of I-bonds in a firebox safe that are yielding 4.5%, that are more or less considered
the “emergency fund”; there is little temptation to spend them, some hassle, and it’s nice to see the wonders of compound interest work in our favor rather than the other way around. “Emergency fund” to my way of thinking means cash or something awfully close to it. With all the consternation and teeth gnashing about “banks”, note that individuals and LLCs, etc, can open a Treasury Direct account online and purchase as little as $25 worth, or millions of dollars of Notes, Bills, Bonds, TIPS, etc. Your broker won’t make his commish, but there isn’t really much advantage except for those who want more sophisticated “laddering” of securities. Another problem that I would love to suffer, what if I have more than 100k in cash savings? CDARS is a way of efficiently spreading deposits around to numerous banks who participate in the program. One statement, consolidated, simple. My dad used to tell me about rural Farmers who would open scores of accounts, making a mess for heirs. This is tailor made for “paranoid” types, short of mason jars.
Dave is making big bucks off people in trouble. But he is getting the word out to a lot of either ignorant or desperate folks. I listen to him on the radio because he agrees with me. Same reason I listen to a lot of other talk radio.
“Yep, we are tired of being shackled with debt. I now have less than $3,000 in consumer debt not counting a mortgage and will pay that amount off in the next two months.”
...sounds like you are part of the new movement that’s sweeping America....we finally got totally free 5 years ago when we paid off our mortgage....what a feeling!...and BTW I couldn’t relax and really enjoy my retirement until that damn mortgage was paid in full.
Can’t disagree with that, just have an aversion to people making money off desperate people.
His message that debt sucks and beware of banks is solid.
We were in a 30 yr mortgage @ 8% for several years, but got a 4.5% in 1995. We actually had a lower monthly payment and our house is now paid for in full.
There are certain housing markets I wouldn’t touch with a ten foot pole, e.g. Cleveland and Las Vegas.
Other places may have bottomed out and are starting to come back. Interest rates are certainly attractive and will probably stay low for a few more years.
There will still be bargains out there in a few years for the patient.
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