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Dear Dave,

My wife and I are doing pretty well and we follow what your principles for the most part. We own a home that isn’t gaining a lot of value. We made the decision to buy this home with our heart and not with our heads. Our plan was to live in this starter home for five years, until our daughter who is two now becomes old enough to go off to school. At that point we were going to take the plunge into a bigger house in a better school district than we are in right now. With interests rates so low right now, I was wondering if it would be smart to go ahead and move to the bigger house now, even though we do have some debt and it doesn’t look like we could afford a big down payment right now. I just need some of your advice.
Mike in Tallahassee, FL

Dear Mike,

There are a couple of guidelines that I would suggest that you use: First of all, I do not suggest that you buy a home until you have an emergency fund set up and you are debt free except for the home you are in now. Second thing is you should never get more than a 15-year mortgage. Ever. Thirdly, I strongly suggest that you put down at least 20 percent down in order to avoid the PMI, or Private Mortgage Insurance. The final thing is, when you make the move, your mortgage payment should not be more than 25 percent of your total take-home pay. If it is going to be more than that, I would suggest you go ahead and play out your five-year plan before you make the move. I know that interest rates are low right now, but all that does for you is tempt you to do something that you shouldn’t do yet. Three years from now you could be in a completely different financial situation, with a higher income and no debt. You will be in a much better position to make the move by then. If you can follow all of those guidelines, then it is a good move, but if you can’t you need to just back down, take a cold shower because you have house fever, and wait until you can afford to make the move. Then, when you are ready…go for it.

-Dave

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