Hi and welcome back to my series about Dave Ramsey. The previous posts in the series can be found here:
Today I am continuing this series with Baby Step 3b.
What is Baby Step 3B?
Baby Step 3B is the ‘Mini Baby Step’ that comes between Baby Step 3 (The Fully Funded Emergency Fund) and Baby Step 4 (contributing 15% of your income to retirement), and is saving to buy a house.
The reason that it is after baby step, is that you NEED to have your Fully Funded Emergency Fund before you make what will possibly be the biggest purchase of your life. Similarly, the reason it comes before BS4 is because saving for a house is a short-term goal, but you will be in BS4 for a longer time. You can afford putting off contributing to retirement for a few years, in order to save for your house deposit.
Guidelines for BS3B
Dave Ramsey suggests a minimum of a 20% deposit, although here in the UK there are Help to Buy schemes (starting at a 5% deposit), Shared Ownership, and various other government schemes that can help you get onto the property ladder.
The problem with these 5% deposit schemes, is that a lower deposit means higher mortgage payments. It is better to save for longer and have a higher deposit to p0ut down, so that your long-term mortgage payments are lower.
Another suggestion by Dave Ramsey is that you apply for a 15-year fixed mortgage. While this makes sense, its not always easy (or possible!) for the average Joe. I highly suggest using the Mortgage calculator and also looking at current Mortgage Offers on Money Saving Expert. https://www.moneysavingexpert.com/mortgages/
The final piece of guidance from Dave in regards to BS3b, is that your mortgage payments should be no more than 25% of your household take home pay. This makes absolute sense, as you don’t want to struggle paying your mortgage every month.
I hope this has been helpful if you are looking to save for a house deposit while on the Baby Steps. However, these suggestions are pretty solid even if you don’t use the Dave Ramsey Baby Steps.
I’ll be back in a few days with a post on Baby Step 4