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!
The Previous Owner of My House Left a Cautionary Note About Our Neighbors – I Didn’t Believe It Until One Day
When we moved into our new house, we thought we’d found the perfect neighbors in the Johnsons. But after returning from vacation to find our property trashed, I discovered a hidden note that would change everything and force us to question who we could really trust.
We moved into our new house a year ago, and everything seemed perfect. The neighborhood was quiet, the house was beautiful, and we were excited to settle in. Our neighbors, the Johnsons, seemed cool too. They welcomed us with a pie and friendly smiles.
“Welcome to the neighborhood!” Jane beamed, holding out a steaming apple pie. Her husband, Tom, stood behind her, grinning and waving.
“Thanks so much,” I said, taking the pie. “I’m Emma, and this is my husband Mike.”
Mike stepped forward, shaking their hands. “Great to meet you both. We’re really looking forward to living here.”
We chatted for a while, and they seemed nice enough. Their house was somewhat run-down, but that didn’t bother us. Over the next few months, we got to know them better. We had barbecues, swam in our pool, and generally got along well.
But three months later, I found a note from the previous owner tucked inside a kitchen drawer. It read: “Beware of the Johnsons. They’ll make your life hell. Don’t put them too close.”
I showed it to Mike that evening. “What do you think about this?” I asked, handing him the note.
He read it and frowned. “Seems a bit dramatic, don’t you think? They’ve been nothing but nice to us.”
I nodded, but something nagged at me. “Yeah, you’re right. It’s probably nothing.”
“Maybe the previous owner had a personal beef with them,” Mike suggested. “People can be petty sometimes.”
We decided to ignore it. After all, we’d been getting along great with Jane and Tom. Every weekend, we invited them over for pool parties and barbecues. We exchanged recipes, borrowed books, and even asked for their advice about garden design.
“Your tomatoes look amazing, Tom,” I complimented Tom one day when he came over to look at my fledgling vegetable patch. “Any tips?” I asked.
Tom puffed up with pride. “Well, it’s all in the soil preparation…”
Jane and I swapped book recommendations regularly. “Oh, Emma, you have to read this one,” she’d say, pressing a novel into my hands. “It’s absolutely gripping.”
We gave them permission to use our garden and pool any time they wanted — we were set for our annual family vacation, so it felt good leaving the place for our new neighbors to enjoy.
Fast forward to last week. Mike and I returned from our vacation, and what we found left us livid. Our beautiful garden was trampled, the pool was filthy with debris, and there was garbage strewn all over the driveway. It was a complete nightmare.
“What the heck happened here?” Mike exclaimed, his face red with anger.
I clenched my fists. “I don’t know, but I’m going to find out.”
We marched over to the Johnsons’ house. I knocked on the door, my jaw set with determination. Jane answered with a smile that seemed a bit too wide.
“Hey, neighbors! How was your trip?” she chirped.
“What happened to our property?” Mike demanded to know, not standing for any small talk.
Tom stepped out to meet us on the porch, his face a mask of innocence. “That wasn’t us. You can’t prove anything,” he snapped.
I raised an eyebrow. “Why did you think we’d accuse you? Do you know who did this?”
Jane’s eyes darted nervously. “Oh, maybe it was the neighbors across the road? Ethan and his girlfriend — they’re a weird couple, bunch of hippies, if you ask me.”
“Right,” I said, not believing a word. “We’ll go check with them.”
We decided to check it out. Ethan answered the door, looking confused at our aggressive tone. His girlfriend, Olivia, stood next to him, equally bewildered.
“Look, we’re sorry to bother you,” I started, “but our property was vandalized while we were away. The Johnsons suggested it might have been you.”
Ethan’s eyes widened. “What? No way! We’ve barely left the house since moving in. We’ve been renovating.”
Olivia stepped forward. “Actually, we might be able to help. We installed security cameras last week. They cover part of your property too.”
“Really?” Mike perked up. “Would you mind if we took a look?”
Ethan nodded. “Of course, come on in.”
We watched the footage in disbelief. The Johnsons had thrown multiple parties at our house while we were away. Their guests had no respect for our property, and Jane and Tom did nothing to stop them.
“I can’t believe this,” I muttered, watching Jane laugh as her kid spray-painted our fence.
Mike’s fists were clenched. “Those lying, two-faced —”
“I’m so sorry,” Ethan said. “We had no idea this was happening.”
Olivia nodded. “Yeah, if we’d known, we would have said something.”
We thanked them for their help and left, fury building with each step back to the Johnsons’ house. This time, we didn’t bother knocking.
“Hey, Tom,” I called out. “Let’s talk again about the trash that mysteriously appeared on our property.”
Tom came to the door, opened it, and looked at me for a few moments, then he shrugged and offered lamely, “You’re blowing this out of proportion. It’s just some trash and a bit of paint. Kids will be kids, right?”
“Just some trash?” Mike exploded. “Our pool is filthy, our garden is destroyed, and there’s garbage all over our property!”
“And let’s not forget the multiple parties you threw at our house,” I added. “We saw the security footage.”
Jane’s face paled. “What footage?”
“Ethan and Olivia’s security cameras caught everything,” I explained, enjoying the look of panic on their faces.
Their smug attitudes fueled my anger. I knew it was time to teach them a lesson they wouldn’t forget.
That night, after the Johnsons had gone to bed, Mike and I put our plan into action. We gathered up all the garbage they’d left at our house, plus a few extra “presents” from our trash.
At midnight, we crept over to their yard. “Ready?” I whispered to Mike.
He nodded, a mischievous glint in his eye. “Let’s do this.”
We spread the trash all over their lawn and garden, making sure it was a complete mess. As a final touch, we let our kids paint whatever they wanted on the Johnsons’ front fence.
“Remember, kids,” I whispered, “be as creative as you want.”
Our daughter grinned, wielding her paintbrush like a weapon. “This is gonna be fun!”
The next morning, we woke up early to watch the show. Jane’s scream of disgust was music to my ears.
“Tom! Tom! Look at this!” she shrieked.
Tom stumbled out, and his jaw dropped at the sight. “What is this?”
We casually strolled over, coffee mugs in hand. “Everything okay?” I asked innocently.
Jane turned to us, her face red with anger. “Did you do this?”
I shrugged, mimicking Tom’s gesture from yesterday. “You’re blowing this out of proportion. It’s just some trash and a bit of paint.”
Mike chimed in, “Kids will be kids, right?”
The look on their faces was priceless. They knew they’d been caught, and there was nothing they could do about it.
“This is unacceptable!” Tom blustered. “We’ll report you to the homeowners’ association!”
I smiled sweetly. “Go ahead. I’m sure they’d love to see the footage of you vandalizing our property too.”
Jane’s face crumpled. “Why would you do this?”
“Why would we do this?” Mike repeated incredulously. “Are you serious? You trashed our house, threw parties without our permission, and let your guests destroy our property!”
“And then you lied about it,” I added. “You even tried to blame Ethan and Olivia.”
Tom had the decency to look ashamed. “We… we didn’t think you’d find out.”
“Well, we did,” I said firmly. “And now you know how it feels.”
Word spread quickly through the neighborhood. When Jane tried to complain to other neighbors, we simply showed them the footage of what the Johnsons had done to our property.
“I can’t believe they would do that,” our neighbor Mrs. Peterson said, shaking her head after watching the video. “And they seemed like such nice people.”
Another neighbor, Mr. Garcia, was equally disgusted. “That’s just not right. You can’t treat people’s property like that.”
Within days, the neighborhood had turned against them. They had no choice but to clean up their mess and change their ways.
As I watched them picking up trash from their lawn, I couldn’t help but think about that warning note. Sometimes, you need to stand up for yourself and teach people a lesson in respect. The Johnsons learned the hard way that treating others badly can come back to bite you.
“You know,” Mike said, putting his arm around me, “I’m glad we found that note, even if it was a little late.”
I nodded, leaning into him. “Me too. And next time, we’ll listen to warnings like that a lot sooner.”
We stood there, watching the Johnsons work, feeling satisfied that justice had been served. It wasn’t the welcome to the neighborhood we’d expected, but it sure made for one hell of a story.
As we turned to go back inside, I saw Ethan and Olivia walking down the street. They waved, and we waved back.
“You know,” I said to Mike, “I think we might have found some real friends in this neighborhood after all.”
What would you have done?
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