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!
After returning home from a month-long vacation, a woman wakes up the next morning to discover a stranger sleeping on her couch
Megan was thirty-four, never married, had no kids, and worked a demanding job as a producer. She was tired of hearing questions about her personal life from her mother, but deep down, she knew her mother was right—it was time to change something. Little did she know, the change would find her first.
It was a late evening, and Megan was driving home after a long, exhausting month of what was supposed to be a vacation.
Her hands gripped the steering wheel tightly as she chatted on the phone with her mother, Dina. The road ahead was quiet, with only the faint glow of the car’s headlights cutting through the darkness.
Despite the peace outside, Megan felt anything but relaxed.
“Megan, I don’t understand how you can go on vacation and still work the entire time!” her mother’s voice echoed through the car’s speaker. The concern in Dina’s tone was unmistakable.
“You’re always on your phone, always busy. You’re 34 years old, dear. When are you going to start focusing on yourself, on your personal life?”
Megan rolled her eyes, though she knew her mother couldn’t see her. A hint of frustration crept into her voice.
“Mom, I didn’t have much choice. Things never go as planned at work, and as a producer, my attention is needed constantly. You know that.”
Dina, persistent as always, wasn’t ready to let the conversation drop.
“But when will I get to see grandchildren? You’re too focused on your career, and I’m worried you’ll never settle down. Don’t you want a family someday?”
Megan sighed, gripping the wheel a little tighter as she tried to keep calm. She loved her mother, but this conversation was becoming all too familiar.
“Mom, I really can’t talk about this right now,” she said, faking a crackle in her voice. “The signal’s bad. I’ll call you tomorrow, okay?”
Before Dina could continue, Megan quickly ended the call, feigning static noises to make it seem like the connection had failed.
She glanced down at the phone and let out a breath she hadn’t realized she was holding.
Pulling into her driveway, Megan parked the car and stared at her house for a moment.
She felt drained, both from the conversation with her mother and from the past few weeks.
What was supposed to be a restful vacation had turned into yet another working trip, with her phone constantly buzzing with problems at work.
For the entire month, she hadn’t been able to fully unplug. She didn’t even know what “rest” meant anymore.
After grabbing her bags from the trunk, Megan walked inside her dimly lit house, too tired to bother turning on all the lights.
She set her bags down by the door and paused for a moment. Something felt off. Glancing around, she noticed that one of the windows on the first floor was slightly open.
Puzzled, she tried to remember if she had left it like that before leaving for her trip. She shrugged it off, assuming she had simply forgotten to close it. It had been a busy month, after all.
Megan shut the window, turned off the last light on the first floor, and headed upstairs.
She barely had the energy to change into her pajamas. She kicked off her shoes, not even bothering to check if everything was in order.
Without thinking, she collapsed into her bed, letting her head sink into the pillow.
The familiar comfort of her bed was a relief, and within moments, Megan was fast asleep, her mind already letting go of the chaos of the day.
Little did she know that tomorrow would bring an unexpected surprise—one she never could have anticipated.
The next morning, Megan was jolted awake by the buzzing of her phone. Half-asleep, she groaned as she answered it, recognizing the overly enthusiastic voice of her assistant, Lisa.
Lisa’s high-pitched chatter filled her ears, rattling off a long list of meetings and tasks for the day at a speed that made Megan’s head spin.
“Lisa, please… slow down,” Megan mumbled, trying to focus as she stumbled out of bed. She held the phone between her ear and shoulder while getting dressed, lazily brushing her teeth, and starting her coffee machine.
The warmth of the coffee was barely hitting her system when something made her stop mid-sip—loud snoring coming from the living room.
Her body tensed as her brain struggled to process what she was hearing. Who is in my house?
“Lisa, I’ll have to call you back,” she said abruptly, hanging up the phone before Lisa could respond. Heart racing, Megan cautiously walked toward the living room, each step feeling heavier than the last.
Peeking inside, she couldn’t believe her eyes. A man—fully dressed with boots still on—was sprawled across her couch, snoring loudly.
Dirty footprints trailed from the window she had closed the night before to where the man now lay. Megan’s mind raced with questions. Who is this guy? How did he get in?
Her eyes narrowed, and without thinking twice, she darted to the kitchen, grabbing the nearest weapon she could find: a broom.
She marched back to the living room and jabbed the man with the handle.
He stirred, groggy and confused, blinking as he rubbed his eyes.
“Who are you?” Megan demanded, doing her best to keep her voice steady despite the panic rising in her chest.
The man, still half-asleep, sat up slowly. “Uh… I’m George,” he muttered, his words slurring together. “How did I get here?”
“I was about to ask you the same thing!” Megan snapped, frustration mixing with confusion. “Why are you on my couch?”
George blinked, clearly disoriented, as he looked around. “I don’t remember much… I was out with some friends, and then… nothing. I guess I drank too much.”
Megan sniffed the air and immediately recognized the stale scent of alcohol. It didn’t take long to piece together what had happened—George had been blackout drunk and somehow ended up in her house.
Her anger started to fade, replaced with a mix of disbelief and reluctant sympathy.
“Well, you’re lucky I didn’t call the police,” she said, setting down the broom. “Take these.”
She handed him a bottle of aspirin and watched as he gratefully swallowed a couple of pills.
“I need to leave for work, but this time make sure you use the door when you go. Not the window.”
George, still looking sheepish, nodded. “Thank you… and I’m really sorry.”
Megan sighed. “Just… don’t make a habit of it.” With that, she grabbed her things and headed out the door, leaving George to process his own mess.
That evening, Megan drove home after a long, exhausting day at work. Her eyes felt heavy, her body sore from sitting in meetings and staring at screens for hours. Her stomach growled in protest, reminding her that she hadn’t eaten anything substantial all day.
There hadn’t been a single free moment to stop for groceries, and she sighed at the thought of coming home to an empty fridge.
As Megan walked into the house, she froze. The familiar smell of her dim living room was replaced by something unexpected—the soft glow of candles flickered around the room, casting a warm, inviting light.
The dining table, which she had left bare that morning, was now set with plates, silverware, and an array of delicious-smelling dishes.
At the center of it all stood George, looking slightly awkward and sheepish but also determined. He rubbed the back of his neck nervously as he saw her expression.
“What is this?” Megan asked, her voice a mixture of shock and confusion.
George shifted his weight from one foot to the other.
“I… I felt really bad about what happened this morning,” he explained, his voice soft. “So I cleaned up the mess I made, and I wanted to cook you dinner. You know, to make it up to you.”
Megan blinked, still processing the scene before her. She had expected to come home, collapse onto the couch, and figure out how to deal with her hunger.
Instead, she found this—a stranger who had passed out on her couch that morning, now standing in her living room with an entire meal prepared.
“You didn’t have to do this,” she said, still a bit in disbelief.
“I know,” George replied, “but I wanted to. It’s the least I could do after… well, everything.” He offered a small, apologetic smile.
George began to gather his things, ready to leave and give her space, but Megan stopped him.
“Wait,” she said softly, not wanting him to rush off just yet.”
You’ve already gone through all this trouble to make such a nice dinner. Stay and have it with me. I can’t eat all of this by myself, anyway.”
George hesitated, his uncertainty clear.
“Are you sure? I didn’t mean to intrude.”
Megan smiled warmly, her exhaustion from the day fading just a little. “Yes, I’m sure. Besides, it would be nice to have some company.”
They both sat down at the table, and as the scent of the warm food filled the air, Megan couldn’t help but feel a surprising sense of calm.
The hectic day seemed to slip away, replaced by an evening of unexpected comfort.
They sat down at the table, the soft glow of the candles creating a peaceful atmosphere. As they began to eat, the earlier tension seemed to melt away with each bite.
George, now more comfortable, started telling Megan about his wild night out with friends. He laughed as he explained how too much fun and a little too much to drink had led him to her couch, of all places.
“I honestly didn’t even realize I wasn’t home until I woke up this morning,” George chuckled, shaking his head.
“And when I saw you standing there with a broom, I thought I was in serious trouble.”
Megan couldn’t help but laugh along, her earlier frustration fading with each word.
The stress she had carried home after a long day at work seemed to vanish, replaced by the simple joy of sharing a meal and a conversation with someone who made her laugh. It felt like a break from the routine, like a breath of fresh air.
For the first time in what felt like ages, Megan felt completely relaxed. George was easy to talk to, and the conversation flowed naturally. They joked, swapped stories, and enjoyed the food he had so thoughtfully prepared.
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