Dave Ramsey Recommends Taking These 7 Steps Before Buying a Home

How many of them have you checked off your to-do list?

If you're thinking of buying a home, you need to make sure you're financially ready to make such a large commitment. The purchase of a home means that you'll be promising to pay a lender for decades to come. You'll also be committing to other ongoing expenses, including property taxes, maintenance, and insurance costs.

Before you take this huge leap and change your financial life forever, personal finance expert Dave Ramsey believes there are seven key steps you need to complete first. Here's what they are.

1. Pay off your debt and build up a healthy emergency fund

Ramsey urges would-be home buyers to focus on knocking out your debt "as fast as possible" before you commit to buying a property.

By getting rid of other debt payments prior to becoming a homeowner, you'll be better able to save for a down payment and will have more flexibility in your budget.

While this advice is solid, it's important to consider the type of debt you have. If you have low interest loans with a long payoff time, it may not make sense to pay those off and postpone homeownership in the meantime. This could mean you miss out on the chance to get on the property ladder before prices rise.

An emergency fund, however, is always important even, if saving one means putting off homeownership. You don't want to jeopardize your ability to pay for or maintain your home after purchasing it.

2. Make sure you can afford your monthly mortgage costs and maintenance expenses

Ramsey warns that your mortgage payment isn't the only expense you'll need to cover when you become a homeowner. You'll also need to pay for home insurance, private mortgage insurance if you didn't make a 20% down payment, HOA fees (potentially), and ongoing maintenance for the home.

Having an emergency fund can help you cover some of these maintenance costs if things break. But you don't want to constantly raid your emergency fund every time there's an appliance issue.

Instead, it's best to start a special home repair fund you can use to cover these costs. Assume you'll need to save around 1% of your home's value per year for maintenance so you are ready even for big expenses that come up.

3. Save up a hefty down payment

Ramsey says the best way to purchase a home is to pay cash for 100% of it. But this is unrealistic for most people, and likely not the best use of your money, considering you can get a low interest mortgage with tax-deductible interest and use your cash for investments that produce a better return.

But he is right that you should aim for a down payment of at least 20%. Doing so ensures you have plenty of equity in the home so you don't end up owing more than it's worth. It also allows you to avoid the added costs of paying for mortgage insurance, which is really just there to protect your lender.

4. Save enough to cover closing costs

Ramsey points out that closing costs can be expensive, totaling as much as 4% of your home's purchase price under some circumstances. If you don't have the money to cover these outright, you'll have to borrow for them. That would mean paying more on your monthly mortgage payments and interest payments for the life of the loan.

5. Make sure you're prepared for moving expenses

Ramsey also urges home buyers to prepare for another big upfront expense: moving costs. Moving expenses can add up to thousands of dollars, and he advises getting estimates up front for what the total costs will be to make sure you're ready to cover them.

6. Think about your future plans to ensure you won't have to move for a while

It takes time for you to make back the money you spend on upfront fees when purchasing a home. As a result, Ramsey rightly urges that you wait to buy a home until you're sure you'll be in it for more than a few years.

Generally, a good rule of thumb is that if you won't be in the property for at least two years, you'll be better off renting.

7. Find a trusted real estate agent

Finally, Ramsey urges anyone interested in buying a home to find a real estate agent they trust. As he explains, the seller pays the commission for your agent if you hire one so you have nothing to lose by getting expert advice. And you will be able to save a lot of time by not trying to figure out the paperwork yourself.

This advice, like several of the suggestions on this list, makes sense in most situations. But of course, every individual has their own personal level of expertise and financial goals. You should take these tips into account and make your own checklist of must-complete tasks before you decide you're ready to buy a home of your own.