Dave Says

Dear Dave,

We've got our starter emergency fund in place, and we've paid off the last of our debt. Currently, we rent an apartment but my wife really wants us to buy a house now. She also wants us to use a 30-year, 100 percent financing plan, and says this wouldn't cost any more than we're paying in rent. I disagree with her idea, and she's upset with me. How can I make her see this is a bad plan?

Alan

Dear Alan,

I think she probably knows deep down this isn't a good plan. She's found something she really likes, and she's mad because you're not going along with the idea. It's called "house fever."

When you buy a home with nothing down and little to no money in the bank, you're inviting Murphy and his cousins -- Broke, Desperate and Stupid -- to move in with you. In other words, you'll find yourselves in a mess because you didn't have the maturity and wisdom to wait until you had your fully funded emergency fund of three to six months of expenses in place, plus a 20 percent down payment saved up for a house.

The idea that you save money because your house payment is the same, or even a little less than your rent, is a myth. It costs more to own a home, period. As a homeowner, you're exposed to all kinds of things you never have to worry about as a renter.

We all have times when we get excited by something we want and do things we shouldn't. I've done it, and I'll bet you have, too. But in situations like this, you've got to sit down and talk things out. I'm not sure how to get your wife to realize this or act more mature, but I do know that people who charge into things of this magnitude without thinking are the very ones who end up in my office for financial counseling or filing bankruptcy!

--Dave


Dear Dave,

I'm 19, and I have a job making $30,000 a year. I've also got about $40,000 in stocks and $10,000 in savings. I want to buy a house in the near future. Should I pay cash and buy it outright, or is a 15-year mortgage okay?

Sam

Dear Sam,

I love the idea of paying cash for a house, but I'm even more impressed that you've got so much you could put toward a house and a job making $30,000 a year at age 19. Man, you're really kicking it!

But the thing that keeps sticking in my mind is that you're still just 19-years-old. Now, there's nothing wrong with being 19, but there's also nothing wrong with waiting a few years and getting a little more life experience under your belt before you take on a mortgage.

At times like this, I think about what I'd tell my own son at your age. And honestly, I think I'd advise him to wait and let life happen for a while. You've done some amazing things, but I think the best thing would be to keep piling up cash. Then, take a look and see how you feel and what your life is like in four or five years.

You've got lots of time and a huge head start already. When the time is right, either pay cash or do a 15-year, fixed-rate mortgage. And if you take out a mortgage, make sure the monthly payments are no more than 25 percent of your take-home pay.

--Dave


* Dave Ramsey is America's trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.