For most people, their first home isn’t their dream home. It starts off nice enough. But as time goes by and your family grows, starter homes tend to get a little . . . cramped.
But don’t hate on your current home too much. Because while it gave you a safe and dry place to lay your head at night, it was also setting you up to own your dream home someday.
We’ll show you how it all works and walk you through the steps that’ll get you in your dream home—one you can actually afford!
How to Get Your Dream Home in 5 Steps
Here are the steps:
- Follow the Financial Basics
- Find Out How Much Equity You Have
- Set Your New Home-Buying Budget
- Find the Right Dream Home for You
- Be Picky and Patient
Now let’s cover each step in more detail.
Step 1: Follow the Financial Basics
First thing’s first—you have to get out of debt, get on a budget, and build up an emergency fund of 3–6 months of expenses. Sounds pretty basic, right? If you haven’t completed these steps, then you’re not ready to upgrade to your dream home . . . yet.
Now, when you’ve got house fever, it can be hard to focus on paying off debt or saving an emergency fund before you upgrade your home—especially when you’re feeling the pressure of rising home prices and interest rates.
But whether it’s your second or third house, you should only buy a home when you’ve covered the financial basics we mentioned above. Then you’ll be ready to start the journey toward owning your dream house.
And that journey starts with your home equity. What’s equity? Well, we’re glad you asked . . . that brings us to the next step.
Step 2: Find Out How Much Equity You Have
Home equity is a pretty simple concept: It’s your current home’s value minus whatever you still owe on your mortgage.
See, in most cases, your home’s value increases over time. Similar to other long-term investments (like retirement accounts), homes gradually increase in value. There have been periods of ups and downs in the market to be sure, but the value of real estate has consistently gone up. According to the St. Louis Federal Reserve, the average sale price of a home has increased over 2,300% from 1965 to 2023! And in the last ten years (2013 to 2023), there’s been a 68% increase.1 As your home increases in value, so does your equity. In real estate terms, this is called appreciation.
Other factors that increase your home’s equity include:
- Added value: Home improvement projects like adding square footage, updating fixtures and appliances, or even just slapping on a new coat of paint can add value to your home.
- Mortgage paydown: Paying down your mortgage not only gets you out of debt faster, it also builds your equity. The less you owe on your home, the more equity you have.
The amount of equity you have gives you a pretty good idea of how much money you’ll end up with after selling your house. You can use that money to make a hefty down payment and cover the other costs that come with buying a home.
Find expert agents to help you buy your home.
So, how do you determine your home’s value? Well, you can get a ballpark estimate on real estate websites like Zillow, ask a trusted real estate agent to perform a competitive market analysis (which they’ll do anyway if they’re helping you sell your house), or get a professional appraisal.
Finding out your home’s equity will involve a little math, but it’s third-grade-level stuff, so don’t sweat it.
Here’s what we mean. Let’s say your home’s current value is $355,000. When you sell that house, you’ll have to pay for between 1–3% of the sale price in closing costs, another 6% in fees for the real estate agent who helped you sell it, and whatever’s left to pay off on your mortgage.
That means you can estimate clearing over $223,000 from selling your house. That’s a killer down payment on your dream home! And if your home is paid off, that’s even more money to put down and use to pay for things like repairs and moving expenses.
Step 3: Set Your Dream Home Budget
Once you know how much you’ll clear from the sale of your home, you can start making a budget for your dream home.
The key to owning your dream home (instead of it owning you) is to keep your mortgage payment to no more than 25% of your take-home pay on a 15-year fixed-rate mortgage, along with paying a down payment of at least 20% to avoid private mortgage insurance (PMI). Never get a 30-year mortgage even if the bank offers it (and they will). You’d pay a fortune in interest—money that should go toward building your wealth, not the bank’s.
So, let’s say your take-home pay is $4,800 a month. That means your monthly mortgage payment shouldn’t be any bigger than $1,200. By the way, that 25% figure should also include other home fees collected every month with the mortgage payment like homeowners association (HOA) fees, insurance premiums and property taxes.
Plug your numbers into our mortgage calculator to see how much house you can afford.
And don’t forget to budget for all those other costs that come with the home-buying process in addition to your closing fees—things like moving expenses and any upgrades or repairs you might need to make. You don’t want these hidden costs to catch you off guard or drain your emergency fund.
Step 4: Find the Right Dream Home for You
This is where things get real. After all your hard work building up your equity (and doing a lot of math—don’t forget that), you’re finally ready to start the house hunt. Woo-hoo!
But don’t lose focus. Stay zoned in by making a list of features that make a home fit your budget, lifestyle and dreams—and stick to it throughout your house hunt. Here are a few ideas to get you started.
- Don’t compromise on location and layout. If you plan to be in this home for the long haul, an out-of-the-way neighborhood or a wacky floor plan is a deal breaker. Look for a community and layout that’ll suit your lifestyle now and for years to come.
- Think about how much space your family needs. While your budget has the final say about how much home you buy, you’ll want your dream home to fit your family’s needs through different life seasons.
- Consider the school districts. If you have or want kids, the quality of the nearby school districts is probably already on your mind. But even if you don’t have kids or you’re retired, keep in mind that having good schools nearby could increase your home’s value.
- Look for a house that’ll grow in value. Are home values rising in the area? Is the number of businesses going up? These factors can help you figure out whether your dream home will turn into a good investment.
- Count the costs. Want that fancy master bathroom with the multiple showerheads and the Jacuzzi tub? Be clear on what’s a must-have and what’s nice to have. And don’t forget, upgraded features like that will make your dream home more expensive.
Step 5: Be Picky and Patient
We know you’re anxious to get into those new digs, but be patient. Wait for the right house at the right time. Don’t spend your money on a less-than-ideal home just because you’re tired of looking.
The key is finding a good real estate agent who understands your budget and refuses to settle for “good enough.” They’re as committed to your dream as you are and will have your back throughout the entire process, no matter what it takes.
In addition to teaming up with a great real estate agent, you can take a couple of extra steps to make sure you’re ready to strike as soon as the right home comes up:
- Get preapproved for a 15-year fixed-rate mortgage. Having preapproved financing is a green flag for sellers—especially in multiple offer situations. And because this puts most of your information in the lender’s system, you’ll be on the fast track to closing once your offer is accepted.
- Offer earnest money with your bid. Earnest money is a deposit to show you’re truly interested in a home. Usually it’s 1–2% of the home’s purchase price and it’s applied to your down payment or closing costs. Even if the deal falls through, you can almost always get most of it back.
Find a Real Estate Expert in Your Local Market
Now, you might be thinking you have some work to do before you’re ready to find your dream home. Or you may be realizing your years of hard work are about to pay off! Regardless, if you follow these steps, you’ll find the house you’ve always wanted and avoid a purchase you’ll regret.
Once you’re ready, connect with one of our RamseyTrusted real estate agents. These are high-performing agents who do business the Ramsey way and share your values so you can rest easy knowing the search for your dream home is in the right hands.
Find the only real estate agents in your area we trust, and start the hunt for your dream home!
Stories My sister and her family moved into my house without my consent — Karma struck them severely that same day
Phoebe thought her day couldn’t get worse when she found her sister and her family settling into her home without asking. But just as hope seemed lost, an unexpected knock at the door set in motion a delicious serving of instant karma.
I was always close to my sister while growing up, but things changed after she got married. What happened between us a few days ago was something I’ll never forget.
I’m Phoebe, 31, and I own a modest three-bedroom house. It’s nothing fancy, but it’s mine, and I’m damn proud of it.
I’ve been paying it off for ten years now, working day and night to make those mortgage payments.
I won’t deny that I sometimes envy my friends living in their fancy apartments downtown, but then I remember that this place is mine. No landlord breathing down my neck, and no roommates leaving dirty dishes in the sink. Just me and my space.
Now, let me introduce you to my sister, Holly.
She’s 38, a mother of two, and married to her high school sweetheart, Nicholas. We used to be close when we were younger, but things changed when she got married. She started focusing more on her new life, and I never blamed her. I believe she did what she thought was best for her.
We drifted apart, but we were still on good terms. Or so I thought.
Holly and Nicholas have always been the free-spirited types. They’re one of those people who’re always talking about “quitting the rat race” and “living life to the fullest.”
It used to drive me nuts when we’d get together for family dinners.
“Life’s too short to be stuck in a cubicle, Phoebe,” Holly would say, sipping her wine. “You should travel more, see the world!”
I’d roll my eyes.
“Some of us like having a steady paycheck and a roof over our heads, Holly.”
Nicholas would chime in, “But think of the experiences! The memories!”
Yeah, well, memories don’t pay the bills, buddy, I’d think.
I tried to tell them to be more careful with their money. They were always jetting off on last-minute trips or buying the latest gadgets, even with two young kids to think about.
But did they listen? Nope.
A few months ago, they actually did it. They sold their house during the market boom, thinking they’d use the profit to fund a year-long break to “travel the world.”
I remember the conversation like it was yesterday.
“We’re doing it, Phoebe!” Holly squealed over the phone. “We sold the house!”
“What?” I nearly choked on my coffee. “Holly, are you serious? What about the kids’ school? Your jobs?”
“Oh, we’ll homeschool them on the road. It’ll be an education in itself! And we can always find work later. This is our chance to really live!”
I tried to talk some sense into her. I was really worried.
“Holly, have you really thought this through? Travel is expensive, especially with kids. What happens when the money runs out?”
“Don’t be such a worrywart, Phoebe,” she said, brushing off the concerns. “We’ve got it all figured out. We’ll stay in hostels, maybe do some volunteering for room and board. It’ll be fine!”
It was not fine. Not at all.
At first, their social media was full of pictures from nice hotels and fancy restaurants.
“Living the dream!” they’d caption every post.
But within two months, those posts started to dwindle.
The last one I saw was a grainy shot of them camping in some field, with a caption about “embracing the simple life.”
Then, radio silence for a few weeks. I thought they were just busy enjoying their travels, unaware of what was really happening behind the scenes.
One day, I came home from work, exhausted after a long day of meetings and deadlines. All I wanted was to kick off my shoes, pour a glass of wine, and binge-watch some trashy reality TV.
But as soon as I opened my front door, I knew something was off.
There were shoes I didn’t recognize in the entryway, kid-sized backpacks on the floor, and familiar voices coming from my living room.
I walked in, and there they were.
Holly, Nicholas, and their two kids. They were unpacking suitcases and boxes in MY living room.
“Holly?” I blurted out, squinting my eyes as I looked at the mess in my living room. “What… what are you doing here?”
“Oh, hi Phoebe!” Holly chirped. “Surprise! We’re back!”
“Back?” I repeated. “In my house?”
Then, Nicholas stepped forward, smiling like this was the most normal thing in the world.
“Yeah, we decided to cut the trip short,” he said. “Turns out, full-time travel with kids is harder than we thought!”
“And Mom gave us your spare key… the one you gave her for emergencies,” Holly added. “I knew you wouldn’t mind us crashing here for a bit while we figure things out. It’ll only be for a few months.”
“A few months?” I protested. “Holly, are you serious? You can’t just move into my house without asking me!”
“But… we’re family. I thought you’d be happy to help us out.”
“Happy?” I could feel my cheeks burning with anger. “Holly, this is my house. My space. You should’ve talked to me about this!”
“Now, now, Phoebe,” Nicholas interrupted. “Let’s not get too high and mighty here. Family helps family, right? It’s not like you’re using all this space anyway.”
I couldn’t believe what I was hearing. Where did this entitlement come from? Why were they acting like what they did was fine?
“You guys need to leave,” I said, crossing my arms on my chest. “Now.”
But Holly refused.
Meanwhile, Nicholas started subtly threatening me.
“Come on, Phoebe,” he began, looming over me. “Don’t make this difficult. We don’t have anywhere else to go.”
I was furious. If I called the cops, their young kids might get dragged into it, and I didn’t want that.
I needed to come up with a plan, so I headed straight to my bedroom and locked the door behind me.
At that point, I honestly felt like crying. I had no idea what to do until my phone buzzed. It was a text from my old college friend, Alex.
Hey Pheebs! In your area for work. Drinks tonight?
Alex was always the prankster in our friend group, always coming up with wild schemes. If anyone could help me out of this mess, it was him.
I quickly texted him back.
Actually, can you come over? I have a situation and could use your help. Bring your acting skills.
The doorbell rang an hour later, and I raced to answer it before Holly or Nicholas could. When I opened the door, I saw a police officer standing at my doorstep.
“Oh my God, Alex!” I looked at him with wide eyes. “You’re wearing the perfect costume!”
I quickly stepped outside and closed the door behind me.
“What happened, Pheebs?” he asked.
“I need your help getting rid of my relatives,” I told him, still fascinated by his fake police uniform. “They’ve completely taken over my house.”
I quickly explained the situation, and Alex agreed to help. Then, I opened the door and called out to Holly and Nicholas.
“Holly, Nicholas, can you come here please? There’s a police officer who needs to speak with us.”
They were smiling when they came into the hallway, but their expressions immediately changed when they saw Alex in his uniform.
“Good evening,” Alex said. “I’m Officer Johnson. We’ve received reports of a break-in at this address. Can you tell me what’s going on here?”
Nicholas looked at me, squinting his eyes. Then, he puffed up his chest and slowly walked toward Alex.
“There’s no break-in here, officer,” Nicholas said in a serious tone. “We’re family. Everything’s fine.”
“Officer, these people entered my home unlawfully,” I said. “I never gave them permission to be here.”
Alex nodded and then looked at Holly and Nicholas.
“How did you gain entry to this residence?” Alex asked.
“We, uh, we used a key,” Holly stammered. “Mom gave it to me. It was a, uh, spare key for emergencies.”
“But no one asked my permission,” I intervened. “So, technically, you broke in. Who knows what might be missing?”
“I see,” Alex said, looking around the house. “And when the homeowner asked you to leave, did you comply?”
“Now, hold on a minute,” Nicholas said, his voice trembling slightly. “We did—”
“I’m afraid I’m going to have to ask you to leave the premises immediately,” Alex cut him off, pulling out a pair of handcuffs. “Failure to do so could result in charges of breaking and entering, as well as trespassing.”
I wanted to laugh so hard watching Nicholas pretending to be a police officer. He was just amazing. His last sentence was enough to send Holly and Nicholas into a panic.
“We’re sorry…” Holly began. “We’ll pack up.”
They quickly began throwing their things into their bags.
“If you leave right now,” Alex said sternly, “I won’t file charges. But you’ll return the key and never trespass again.”
They didn’t need to be told twice. Alex and I watched in silence as they grabbed their kids and their bags and bolted out of the house.
I finally laughed once their car sped away.
“You’re a lifesaver, Alex,” I said, shaking my head in disbelief. “Coffee?”
“Sure!” he said as he walked in and closed the door behind him.
I quickly made two cups of coffee before we sat in my now-quiet living room.
“I can’t believe they just assumed they could live here,” Alex said, shaking his head.
“I know,” I sighed. “Part of me feels guilty, you know? They’re family, after all. But I just couldn’t let them freeload off me like that.”
“You did the right thing, Phoebe,” Alex reassured me. “They can’t just take advantage of you because their hare-brained scheme failed.”
“I’m so glad you messaged me at the right time, Alex,” I said, looking at my phone. “I don’t know what I’d have done without you. But why did you come dressed up like a police officer?”
“Oh, that,” Alex chuckled. “I was just messing around with friends, pulling pranks and all. I had no idea my costume would come in handy over here. What a coincidence, right?”
“Yeah,” I nodded. “What a coincidence.”
As we talked, I couldn’t help but think of the consequences of my actions. Had I done the right thing? Would this drive an irreparable wedge between me and my sister?
But then I looked around my living room. It was my space, and I had worked so hard for it. I thought about all the long hours and the sacrifices I’d made to buy a house and realized I couldn’t let Holly and Nicholas just take over everything.
I also realized it was okay to put myself first. It was okay to stand up for myself and not let people walk all over me.
What would you have done if you were in my shoes?
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