4 Steps to Buy a House Like Grandpa Did – Part 4 in Financial Freedom Series

I don’t mean to buy a house that looks like your Grandparent’s house, but to use the same process that they used to buy their first home. Back in the day, our grandparents and great-grandparents put a minimum of 20% down on a home before they signed up for a mortgage. Many times they saved up the cash and bought the house outright. They didn’t use a lot of creative financing, or “Zero Down” techniques, but they just used good common sense, worked hard and saved. Believe it or not, this can be done today, but it requires patience, staying out of debt and some good planning.

Dave Ramsey tells a story of a young couple that graduated from college without any debt. After they were married, they lived in a very simple apartment for 5 or 6 years. They lived on his paycheck alone and saved her paycheck for their future house. She made around $30,000 a year, so after a few years, they accumulated a large amount of money.  At the end of 6 years or so, they wrote a check for a home and completely furnished it without borrowing any money! Isn’t that incredible!! I can’t tell you how much I love that story and its simplicity. Who says that accumulating wealth, or making smart money decisions is complicated? It doesn’t have to be.

Mom and Dad, this is where you and I can work together to change the future for our children. I am convinced that if our teens have a plan to live a debt free life, they will be able to do it. And they will be so much better off because they did!

I am not necessarily suggesting that everyone needs to follow the pattern in the story above, but I don’t see why we shouldn’t encourage it. Here are 4 rock solid steps to buying a house that everyone should use. If these methods are applied, then a home will actually be part of the American Dream, not an American nightmare.

  1. Emergency Fund – Before anyone buys a home, they need to make sure that they have 3 to 6 months of living expenses in the bank. This is in addition to their down payment! Take it from my own personal experience; it is not that difficult to find someone to finance your home purchase even when you don’t have any money. The problem is that a house costs money to maintain, and eventually you are going to have to fix something. Most of the time the problem sneaks up on you without your knowledge. With an emergency fund, you are able to move through the problem with minimum stress and move on with your life. Without an emergency fund, these large expenses can start to tear your life apart if you are not careful. Bottom line, you need to have an emergency fund saved before you buy!
  2. Down Payment – You need to save up and have at least a 20% down payment on your new home. Yes this takes time to accumulate, but if you are focused you can make it happen. (Paying off debts also takes time and is much more stressful) It is very important that you start out by owning as much of your home as possible. This is called equity, and as we have learned in recent years, most homeowners saw their equity vanish in a few months, if they had any to begin with. So it is important to have as large a down payment as possible.
  3. 15 Year Mortgage or Less! – Yes this is important! In the story above, the young couple paid cash for a home. This is always the best, but if you follow the principles laid out here, you can do well with a 15 year mortgage rather than a 30 year mortgage. However, any time you take out a mortgage, so much of your payment goes to pay interest, that it can be very depressing. Most people pay interest on mortgages to buy a home, but they are also not able to use that money for other things like investing, saving for retirement, or starting a business. If you start to realize what you can do with that money rather than pay interest, it will help you to be patient in your search for a home and finding one that fits your budget.
  4. No More Than 25% – What I mean by this is that you should only buy a house with a mortgage payment that is less than or equal to 1/4th of your “take home” pay. And this should only be 1/4th of one spouse’s income, not both. Just because you can make the payment today doesn’t mean you can make the payment tomorrow, next month or next year. Jobs are lost, wives get pregnant (this is a good thing) and all kinds of other life events can begin to change your financial picture. If you are conservative with your home buying, these events will only enhance your life rather than become devastating. Once you have purchased your home and are meeting all of your other financial goals, then you can start paying down this 15 year mortgage and make it as short as possible

So imagine that you are someone like the couple who paid cash for their home. Would you be able to find something useful to do with the $1000 a month that you are NOT paying to a mortgage company? I am sure that I could find multiple things to do with it. Imagine the peace of mind you could have. Imagine what you could give away! Imagine what you could start, or what you could finish.

Parents, take the time to teach your teens about some of these old ways of doing things. Let’s work together to steer the next generation toward some seldom-used practices that will make their lives better! You can find more specific advice about all of these topics on www.christianpf.com.

About The Author

Duane Rockensock

Duane (Rocky) Rockensock is a husband, a dad, and the National Reconditioning Manager for AmeriGas Propane. Since he was a teenager, Duane has loved hearing the stories of how people have started creative businesses or found ways to use their talents to accomplish amazing things. For that reason he started this blog to encourage teens and adults to find their purpose and to provide the tools and resources to make that happen!