Purchasing a home is a big step in anyone’s life, especially a first time homebuyer. The high mortgage rates and the up and down housing market is not helping. Rachel Cruze, a personal finance expert says the two-step rule is what you need to use to be a successful home buyer.
She says the first step is to get rid of all of your debt. Once this is accomplished, you need to have a savings built up of up to three to six months in case of an emergency.
“My husband and I followed the formula. I know that’s really hard for a lot of people because of student loans, and the obvious debt that the average American racks up. But when you have no debts and your income is all yours….it puts you in a completely different spot financially,” says Cruze.
It can be a challenge to get out of debt and then build an emergency fund on top of that. This can take time, but it still needs to be done before you decide to buy a home. Most Americans have some sort of debt, in fact, 35% have credit card debt according to a Bankrate survey done in January 2023. A whopping 43.5 million have federal student loans and 51% say they have not purchased a home due to their student debt.
A trick to accomplish this is called cash sfuffing which means you spend only money that you have in cash. “That means you start your budget with whatever your paycheck number is, and you give every dollar a place to go, down to zero,” explains Jasmine Taylor who used the strategy to pay off debt.
Many who are in the market to purchase a home, have enough of a struggle in saving for the down payment. According to the National Association of Realtors, 29% of first-time homebuyers say saving for the downpayment is the most challenging part of the homebuying process.
“When you own a home, you know very quickly that it’s really expensive,” says Cruze. “It’s everything from washers and dryers to heating and air. I mean, we had two ice machines that went out….. We got the bill and I was like, What? For an ice machine? That’s how much it costs?”
“It takes a level of maturity just to look at the facts and say, OK, regardless of how I feel, regardless of how frustrated and annoyed I am, here is where we are financially and here are the numbers that have to work for us. It may not be the home that you could have gotten four years ago, but this is the home you can have today,” says Cruze.