"You Can Put Down Less Than 20% on a Home" –Suze Orman

When Should I Start Saving for a House?

The short answer? Once you are “totally out of credit card debt,” Orman said. This is one of the key points at which you should be before you start saving to buy a home.

You should also be paying any student loan payments on time and any car purchase should be on no more than a three-year loan (meaning you should not be leasing a car), Orman advised.

Those planning to save for a home should also be in a place where they’re “putting money up to the point of the match in their companies retirement plan” and saving for their “eight month emergency fund.”

This emergency fund is money you have on hand to use towards “must pay bills” (such as the mortgage, insurance, taxes and home maintenance costs etc.) in the event that you get sick, are involved in an accident or some other crisis, the expert explained.

A “for sale” sign seen outside a home. With careful planning and budgeting, buying your own house is more achievable than you think. iStock/Getty Images Plus

1. Don’t retire too early

On a recent edition of the podcast Afford Anything, Orman was asked what she thought of the FIRE movement. That’s FIRE as in “financial independence, retire early.”

Her blunt response — “I hate it. I hate it. I hate it. I hate it.” — set off a firestorm among the FIRE faithful.

But she explained that it would take a lot of money to make retirement work at, say, age 35.

“You need at least $5 million, or $6 million,” she said. “Really, you might need $10 million.” In her opinion, anything less wouldn’t offer you enough protection from a potential financial catastrophe, like an expensive illness.

“You will get burned if you play with FIRE,” Orman told her interviewer.

Orman reminded her readers in a June 2022 blog post that there are “no loans for retirement,” so it is key that you save enough for the retirement life you want.

“Without the money you need, your adult kids may need to step in and help. They will do that without question, out of love. But you and I both know it will be a burden you don’t ever want to impose.”

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5. Don’t retire owing money on your home

A survey from mortgage banker American Financing found that 44% of Americans in their 60s and 70s are still paying off a mortgage. And 17% said they don’t expect to ever pay it off.

“This is so not OK,” Orman has blogged.

She urges people to go into retirement mortgage-free, for two reasons: to stretch their retirement savings and to rid themselves of debt — an albatross that affects even mental health.

“If you’re going to stay living in that house for the rest of your life, pay off that mortgage as soon as you possibly can,” Orman tells CNBC.

Without a mortgage, you’ll have more financial security in retirement, she says. So work until you’re 70, use excess emergency savings and do whatever else it takes to get that house debt paid off.

If You’re New to Investing, Go With a Low-Risk Option

Orman told CNBC that the biggest mistake she sees young investors make is buying stock in a company because it’s cool or trendy. With this strategy, “maybe you’ll hit it right, maybe you’ll hit it wrong,” she said. Orman suggested investing a set amount each month into an index fund or ETF instead of picking individual stocks.

Cut Out Your Coffee Habit

“I wouldn’t buy a cup of coffee anywhere, ever — and I can afford it — because I would not insult myself by wasting money that way,” Orman told CNBC. She believes that $3 spent daily on coffee is better off going into a retirement fund or used to meet other savings goals. For example, if you spend $100 a month on coffee and put that money into an IRA instead, that would grow to about $1 million after 40 years given a 12% rate of return. “You need to think about it as: You are peeing $1 million down the drain as you are drinking that coffee,” Orman said. “Do you really want to do that? No.” Helpful: 16 Real People Affected By the Coronavirus Give Their Best Financial Advice

Creative Payment Strategies

Ramsey suggests several creative ways of paying your mortgage or tricking yourself into paying it off early. He likes a 30-year, fixed-rate mortgage, rather than Bach’s recommended 15-year mortgage, but wants people to pay off the mortgage early. Try paying half your total mortgage every two weeks, and you will make extra mortgage payments every year. You may also opt to pay an extra month’s mortgage at the end of the calendar year, ultimately trimming down your 30-year mortgage by seven years.

How Much Should You Spend Home?

The total amount of your homeownership expenses shouldn’t exceed 33% of your total budget as a general rule. Your mortgage choice will have to be adjusted if your house expenses take up more than 33% of your monthly budget.

Don’t Forget About Your Credit

Chatzky said before you start shopping for a home, be sure to review your credit score and credit report. “Interest rates are expected to go up three or four times this year and with each hike, your mortgage is likely to cost more,” the expert warned.

“The way to keep your rate as low as possible is to have a strong credit score. Aim to keep it in the mid 700s or higher. If it’s not there yet, start paying all your bills on time, pay down high interest rate credit card debt and don’t apply for any other credit in the interim,” Chatzky said.

A person looking at their credit score. Before you begin shopping for a home, be sure to review your credit score and credit report. iStock/Getty Images Plus

How Much Of A Mortgage Can I Afford Based On My Salary?

A rule of thumb is that you can afford a mortgage up to two times your monthly income. A fifth of your gross income is needed to pay for these expenses. Principal, interest, taxes, and insurance are usually included in total monthly mortgage payments, which go together as PITI.

Conservative Estimate

On his website Dave Ramsey.com, the financial expert shares his more conservative figures for managing mortgage debt. He recommends everyone make a down payment of 10 to 20 percent. The remaining mortgage payment should equal 25 percent of your monthly household income, after taxes. He also recommends considering the aggressive payment schedule of a 15-year rather than a 30-year mortgage.

Making Suze Orman’s financial advice work for you

In turbulent times like these, understanding what you can influence is a powerful way to cope. Suze Orman’s question — now that we’re saving more, what will we do with that money? — is an invitation to think about the elements of our financial lives that we can have a say in right now.

Whether you negotiate better lease terms with your landlord or property manager, “play house” to see if you can afford that home you want to buy or find ways to save more and invest that money, Suze’s guidance is to think about the ways that you can leave this pandemic better than you entered into it.

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