Rachel Cruze: 5 Things To Do If You Can’t Afford Housing Prices (And 2 To Never Do)
Many Americans want to be homeowners. However, the single-family home with the white picket fence from the American dream seems to be getting further and further out of reach.
One of Dave Ramsey’s co-hosts on The Ramsey Show is his daughter, Rachel Cruze. Cruze, a New York Times bestselling author, financial expert, and show host, has offered some advice on the dos and don’ts for anyone who can’t buy a home yet but wants to.
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What You Should Do
Many Americans are feeling the pressure of rising real estate prices, and they’re looking for advice on how to eventually save enough money to buy property [1]. In response, Cruze listed five strategies that can put you in position to afford a house [1].
1. Get Rid of Your Debt
If you’re interested in buying a house, your No. 1 priority should be getting out of debt. Taking on a mortgage will require large chunks of your paycheck. When you’re already splitting your take-home pay between other sources of debt, like credit cards and student loans, you won’t have enough left over to pay off your house.
One way that Cruze suggests handling your debt is by using the snowball method. The snowball method requires you to list your sources of debt and put your extra money toward the principal balance on the smallest debt. Eliminating your debt from smallest to largest will give you some momentum and a sense of progress [1].
Another way to pay off debt is the avalanche method. Instead of focusing on the amount, with the avalanche method, you focus on the interest rate. After listing your sources of debt, you aggressively pay down the debt with the highest interest rate first. While this method might not give you the same feeling of momentum as the snowball method, you’ll end up paying less overall [2].
2. Find More Economical Housing
Finding more affordable housing seems like an obvious solution, but it can be tough for some to accept. If you can’t find any cheaper options in your local housing market, it may be time to consider moving to another city or state.
Cruze suggested driving for 20 miles in any direction to see the housing costs [3]. While living further away from your job or moving out of an area you prefer can be challenging, it may be the key to owning your home.
3. Make More Money
Generating more income can help solve many financial problems, including making a home more affordable. You can make more money to put toward a property in numerous ways. Some of the ways Cruze and Ramsey suggest doing so include [4]:
Asking for a raise: Work hard at your current job, keep specific records of your success and request a pay increase.
Getting a side gig: Look for extra part-time work that you can do alongside your primary job.
Finding a new job: Consider leaving your current job for a higher-paying position.
Selling your things: Use online platforms or events like garage sales to make money off objects you no longer need or use.
Another real estate expert and personal finance YouTuber, Graham Stephan, emphasizes the importance of having multiple income streams [5]. He pointed out that 65% of millionaires have three streams of income [5].
Adding a passive income stream or monetizing a hobby like creating YouTube videos can give you some extra financial support. With multiple income streams, you’ll have more stability when paying off your mortgage.
4. Maximize Your Savings
Buying a house requires a large down payment, and that requires saving up for a while. The sooner you can set aside a large sum of money, the sooner you can become a homeowner. You must start maximizing your savings as soon as possible.
Cruze and fellow co-host Jade Warshaw had some simple tips on how to save more. Among the most important tips are making a monthly budget and setting savings goals [1][6]. These allow you to track your spending and give you a financial map to follow. Some of their other ideas include [6]:
Review your insurance rates.
Switch to a cheaper phone plan.
Pack your lunch.
Use your library card.
Don’t be afraid to say “no.”
Saving for a house can take a long time. Don’t skimp on other areas just to amass a down payment faster. Cruze explained that having an emergency fund of three to six months’ worth of your expenses is crucial before you put any money toward a house [1].
5. Revisit Your Dream Home
You may have an idea of your perfect home, but Cruze advises that you remain open to other options. The home that you’re envisioning might cost more than you can afford, and taking out a mortgage for it could put a financial strain on your life for years down the line [1].
Buying a house that isn’t your dream home doesn’t mean you’re stuck with it forever. You’ll probably end up moving at some point, and you can also save more by renovating the house later on [1].
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What You Shouldn’t Do
Beware of rushing into it and making a bad decision when you’re eager to buy a home. Just as there are steps you can take to put yourself in a better position to buy a home, there are also common mistakes you should look out for.
1. Don’t Get Creative With the Financing
Cruze explained that using mortgage options with bad rates or dedicating too much of your monthly income to your payments can be disastrous [1]. She also warned against using these programs finance your home:
Rent to own: When you rent to own, you live in a property and pay rent until the lease ends. Once the lease ends, you can purchase it. However, if the real estate market drastically changes, you may end up paying more than the house’s value [7].
Seller financing: Seller financing is when a homeowner provides a buyer with financing options directly, without using a financial institution. In doing so, the seller may try to trick you into paying an abnormally high interest rate or take advantage of you in some other way [8].
Adjustable-rate mortgage: These mortgages have interest rates that change based on the state of the housing market. Therefore, you may end up paying a higher rate in the future because of changes in the market [1][9].
2. Don’t Borrow More Than You Need
It may seem tempting, but don’t automatically take out the maximum amount you qualify for. When you’re buying a home, it’s important to realize that what the bank is willing to lend you and what you can actually afford to pay back aren’t necessarily the same thing.
As Stephan explained, it’s the lender’s job to give you the largest loan or line of credit possible [5]. Instead, he suggested carefully budgeting what you can afford to spend on a house and then taking out a loan for that amount [5].
Buying a Home Is Possible
Although it can be challenging to come up with enough money to afford a home in today’s real estate market, it is possible.
By taking care of your finances first and finding housing options that fall within your price range, you’ll be ready to begin your journey toward purchasing a home. The process may be long and require some sacrifices, but by following Cruze’s dos and don’ts, you can make the home-buying process more affordable [1].
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