A DISTRESSED first-time buyer has found out they are too broke to buy a house they’re already contracted for.
Fortunately, money guru Dave Ramsey offered a way out of the mortgage mess.
Stephanie from Arlington, Virginia called into The Ramsey Show to get help with her financial predicament.
The 28-year-old was a first-time homebuyer who “went in the deep end” with her first buy.
Stephanie had contracted to buy a $760,000 house with a 10% downpayment on her mortgage.
The problem was, she only had half the downpayment.
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Stephanie had found the first half of the money by selling her employee stock.
She had no savings other than cryptocurrency and what was in her retirement accounts, and was now thinking about taking out a loan against her 401(k) balance to meet the rest of the downpayment.
Dave was outraged by Stephanie’s decision to buy a $760,000 house as her first home, especially as she had no actual money in the bank.
“We don’t cash out 401(k)s, we don’t cash out Roth IRAs, we don’t borrow on 401(k)s,” he said.
“You’re gonna get your butt penalized off. You’re too broke to buy this house!
“You shouldn’t have bought it, but you’re already contracted to buy it.”
However, Dave found out that Stephanie had around $30,000 in cryptocurrency.
He advised her to sell the crypto “today” to raise the remainder of the downpayment, without eating into her retirement plans.
Dave also said a 5% down loan would have been better, and that Stephanie should keep back $20,000 as an emergency fund.
“Do not close on this house and put every dime you have into it, because as soon as you move in, crap’s gonna fall in.”
Where to save your retirement money
There are several different places where you can put the money you save for retirement. Each has different tax advantages, but not all of them are available to everyone.
401(k) – an employer-sponsored retirement account. Contributions are made pre-tax and many employers will match a certain percentage of your contributions. Taxes are paid when the funds are withdrawn in retirement.
Roth IRA – an individual retirement account. Contributions are made post-tax but withdrawals in retirement are not taxed.
TSP (thrift savings plan) – a retirement savings and investment plan for Federal employees and members of the uniformed services. They work similarly to 401(k)s but may have more limited investment options.
Pension – an employee benefit that commits the employer to make payments to the employee in retirement. Pensions are becoming increasingly rare.
“You’re asking for trouble being broke and buying a house,” Dave continued.
“It’s not a blessing to buy a house when you’re this broke.”
Dave recommends his followers to have an emergency fund of at least three to six months living expenses saved before buying a home, as part of his 7 Baby Steps method.
He also advises to pay off the mortgage early, where possible, so you can focus on financial goals like saving for retirement and children’s college funds.
See how one of Dave’s fans paid off $234,000 ofdebt in just 31 months.
Or find out what he advised for a 70-year-old who had no retirement money.
