Should You Rent or Buy a Home? Here's What Dave Ramsey Thinks

Ramsey's advice could help you decide whether to buy or rent. 

Deciding whether to rent or buy a home is one of the biggest financial decisions you'll ever make. If you opt to buy, you'll be committing yourself to making decades of mortgage payments and will likely end up with your home as your largest asset. You'll also be committing yourself to paying for decades of home maintenance and repairs, which a landlord would otherwise pay for. But you'll be building equity with each payment. 

The choice of whether to rent or buy is a personal one you should make in light of all the pros and cons of each option. To help you make that decision, you may want to consider some expert advice from finance guru Dave Ramsey. 

Here's what Dave Ramsey says about renting vs. buying a house

According to his Ramsey Solution's blog, Ramsey believes you should buy a home if and only if you are financially ready to do so. And in order to be financially ready, you should:

• Not have any other consumer debt, such as credit cards or personal loans. Ramsey believes being debt-free is important before homeownership because, "Houses are expensive, and they come with a lot of unexpected costs." Having other debts to pay means you'll have less money free to cover these costs. 
• Have an emergency fund with three to six months of living expenses saved up. This will enable you to make monthly payments even if something were to happen to your income. 
• Have money for a down payment. Ramsey advises making an absolute minimum down payment of 10%, but ideally putting down 20% to avoid getting stuck with private mortgage insurance. 
• Making sure your housing costs don't exceed 25% of take-home pay: This includes all the costs of your home, including HOA fees if any as well as property taxes and insurance. As Ramsey explains, making sure you don't tie up more than a quarter of your income in your home "leaves plenty of room in your budget to achieve other goals."
• Not have plans to move within the next three years. Ramsey believes you'll need to plan to stay in your home for several years before incurring the expenses of homeownership and making a commitment to buy. 

If you do not meet these criteria, he suggests putting your homeownership dreams on hold and renting while you get into a better financial position.

Should you listen to Ramsey on homeownership?

Ramsey is spot-on with most of his advice. You do need to make sure you can cover the mortgage and pay for emergencies at your home even if something goes wrong with your job or if you get sick. Otherwise you could face foreclosure. You also don't want to spend too much on your home and become house poor, or buy with plans to move soon since you likely won't make enough on the sale to cover closing costs.

However, it doesn't necessarily make sense to wait to buy a house until all other debt is paid off. You probably shouldn't buy a house with a ton of credit card debt, of course, but if you have affordable low interest loans that take up a reasonable percentage of your budget, there's no reason to put off homeownership -- potentially for years -- while you pay those down. 

Ultimately, you should look at the big picture of your financial situation and make sure the housing costs are easily affordable before you move forward with buying a place of your own.