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What You Need to do Before Buying a House

Dear Dave,

My husband and I have been married for three months, and were debt-free. Right now, were trying to save up a 20% down payment for a house. I work for a real estate company, and theyre really pushing us to take advantage of a first-time homebuyer deal. The program offers 100% financing, no money down and no private mortgage insurance. They say its a great deal. What do you think?

-Stacy

Dear Stacy,

You guys are off to a great start! Dont blow it now. Those people are wrong. I grew up in the real estate world, and this is a bad idea.

Slow down. Its great that you guys are young and debt-free, but you need to do things that are smart for you. And for you, smart includes a couple of things. First, make sure you have an emergency fund of three to six months of expenses in place. Then, keep saving up for a big down payment.

You know, when I hear the advice you were given I just want to smack somebody. Havent the mortgage lenders learned anything from the last few years? Nothing down, interest-only and sub-prime loans are a big part of the reason for the financial debacle in this country. A house is not a blessing when youre broke, and a bargain is only a bargain when youre ready to buy!

I always recommend waiting at least a year after youre married to buy a house. It takes that long to decide how close you want to live to your in-laws! Plus, you want to spend some time getting used to each other, and knowing each other even better, before making what will be your largest asset purchase.

-Dave

 

Dear Dave,

We hear all kinds of numbers relating to the economy every night on the news. To be honest, I have no idea what most of them mean. Can you tell me more about the Dow Jones Industrial Average?

-Ken

Dear Ken,

The Dow is an index of the stocks of 30 selected companies. Were talking about outfits like Wal-Mart (WMY), Coca-Cola (KO) and Nike (NKE)  some of the big boys. The percentage that the stock prices of these companies rise or fall as a group, on any given day, is the Dow Jones Industrial Average for that day.

Technically, this index is not a good representative of what the stock market is doing because it only takes into account 30 companies. The S&P is a much better measure of what the market is doing, because it represents the stock-price activity of 500 companies.

Lets say youre watching the news, and a reporter tells you the market just went down 300 points and it was at 10,000. That represents only a three percent change, and thats not big news  regardless of what some of the experts say.

Great question, Ken!

-Dave

 

* For more financial help please visit daveramsey.com.

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