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home buying

Money

Saving for a Down Payment

April 26, 2014

Jonathan and I sat down in August to have a conversation about where we were going financially. In the process, we reviewed the Total Money Makeover and we were technically in Baby Step 3B – time to save for a down payment. I was feeling like I needed more encouragement, as the Denver housing market is pretty intense.

So I called Dave Ramsey himself. In his own words:

“The Denver market is white-hot and you should scrape together a down payment as soon as possible.”

He also said that he could tell we were focused and intentional about our finances – how did he know?!?! 🙂 I guess he has a sense about these things. It was the highest compliment we could get from Dave himself.

Into Baby Step 3B went we!

It’s not technically one of the “7 Baby Steps” but it’s between Baby Step 3 and 4. For those wanting a refresher on Dave’s Baby Steps:

dave-ramsey-baby-steps

We didn’t quite go back to beans-and-rice-gazelle-like intensity but we’ve been close. We have definitely lived like no one else so later we can live like no one else. As you can guess, we won’t be doing this home buying process like the average American.

Check out Dave’s home-buying standards:

  • Be completely debt-free and have a Fully Funded Emergency Fund of 3-6 months of expenses (otherwise Dave says Murphy will move into your spare bedroom and bring his cousins Broke, Desperate, and Stupid)
  • 100% down is preferred (OK being realistic, we are NOT doing this)
  • 10-20% down payment minimum (20% preferred to avoid PMI aka wasted mula)
  • Total payment <25% of your take home pay (most Americans qualify for a MUCH higher monthly payment…making them susceptible to being house poor)
  • 15-year fixed rate mortgage (Dave has studied how the 30-year mortgage hurts people long term. He also says if you think you will pay a 30-year mortgage like a 15-year mortgage, you are kidding yourself)

Pretty different approach to the typical American home-buying behaviors. Sure, Dave’s advice is fairly conservative but I know this – it will never lead to our harm. Will we follow ALL Dave’s recommendations? I really hope so but sometimes I get impatient and want to compromise…as there is so much to factor in. For now, things feel a little touch and go. Currently the Denver real-estate market is the 7th most overpriced in the nation. Ouch. There is talk of a “bubble” happening again. Maybe. Maybe not.

What do we do? Get in quick or wait? Buy a house (the most overpriced type of real-estate) or a town home (priced more appropriately)? Do we buy something we will have to move out of in 4-6 years as our family (PLEASE GOD) grows? Or do we buy the bigger house we could stay in for 10+ years that would require us to take a 30-year mortgage (at this point in time)? Or do we go for the cheaper fixer upper on a 15-year fixed mortgage but have to put $30K in updates/repairs during it’s first couple years? Or do we wait one more year, hope interest rates don’t climb and the market doesn’t keep inflating? What are the longterm affects of delaying retirement savings another entire year? So very many options. Enough to make ones head spin.

We will be using this mortgage vs buy calculator for many varying scenarios to calculate the smartest move possible. But there will always be risk we just can’t get rid of. Dave’s standards help minimize that risk, thankfully.

We are currently going through the “pre-qualification” process and from there, we will either begin looking at homes in there area or decide to wait and save longer. We are committed to that 10% down minimum but are going to shoot for as close to 20% as we’re able. Join us as we continue this home-buying journey! I will keep yall updated as we make various decisions.

Anyone out there have any advice? Regrets? Encouragement? I look forward to hearing from yall!