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Ramsey’s advice should be read before deciding to purchase a property using a lease.
Key Point
- Rental properties are sometimes used by people to become homeowners.
- Dave Ramsey does not recommend signing a lease.
- He recommends renting a less expensive home and saving the extra money for a down payment in order to qualify for a mortgage.
If you are looking at different ways to buy a home, rental properties may be on your radar. With this kind of property, it’s not just taking out a mortgage, buying a house, and moving in right away.
Instead, it leases the property under an arrangement that allows it to be purchased at the end of a set period. When you move into a property and start paying rent, some of that money goes toward the purchase, giving you an asset that you can use as a down payment to qualify for a mortgage.
This might seem like a smart approach to saving a down payment while trying out living in the home you’ll one day buy. But financial expert Dave Ramsey doesn’t think renting is the right option for most people. Instead, he outlined a simple alternative.
This is what Ramsey says.
Instead of entering into a rental agreement, Ramsay Solutions The blog suggests instead:
“Why not set aside savings to rent a house for less and deposit the down payment in your own bank account instead of the landlord’s account?” the blog reads.
As Ramsey explains, when you sign a lease, you pay more for housing each month than you would with a traditional lease. Then you either lose that extra money or you’re forced to buy the house on the prescribed schedule outlined in the lease purchase agreement.
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“Your rent will be higher,” Ramsey explained. I’m stuck with a compulsory savings plan that puts me under pressure to buy a home in. Are you ready or not?”
Instead, if you just rent under a traditional lease, you don’t have to pay the landlord as much, which gives you more money that you can put into your savings. You can use it as a down payment when you feel you are in good financial standing.At that time, you can find a home and make a fair offer. Ramsey believes this is a much better approach.
Is Ramsey correct?
Definitely worth following Ramsey’s advice. Lease agreements are often not favorable to the buyer.
Additional rent payments can get stuck When Maintenance costs that the landlord would otherwise cover over months or years. Second, if you can’t get a mortgage to buy a house, or decide you don’t want to proceed with the purchase for some other reason, you could lose all that money if you don’t go ahead with the purchase.
If you agree on the price of the house in advance and the value of the property drops, you may end up paying the inflated price of the property.
All of these downsides can be avoided if you do what Ramsey suggests, find an affordable rental property, and put your down payment into savings. Of course, you have to be responsible enough to actually save the difference. Some people who feel they can’t do that may be better off with the forced savings approach of a lease, even with the other downsides.
Ultimately you’ll have to weigh what you think is best for you based on your own financial habits, but if you can, listen to Ramsey’s advice and follow the approach he recommends. The wisest way.
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