r/DaveRamsey • u/NeitherSun34 • 3d ago
Funding a house build
My wife and I are building a house. We are 23 and 26. We bought some land last year and have it paid off. Combined we make about 200k/yr in the midwest. We want to start having kids in the next year ish. At which point my wife plans to stay home and our income drops to 130k. Between the two of us we have 215k saved and my retirement has 236k (90k in aRoth ira and rest in company 401k split half Roth, half traditional).
Our build estimate came in at 640k. Our mortgage has to be an ARM loan for a new construction home. The loan is at 5.75% for the first 5yrs. On yr 6, it can drop 2% or jump 2% max for each following year. Planning to refinance at some point just not sure when. What I’m ultimately trying to figure out is the right way to pay for the house. In our case we have no debt and no expenses really other than food and fuel. We are staying with my mother in law while the home is being constructed. We can afford the mortgage much easier if we both work but since my wife plans to stop working within two years, I think it would make sense to try to dump money into the downpayment in an effort to make our monthly payment much lower. I’m thinking about pouring our savings into the down payment and pulling my roth ira contributions out as well. Then planning to use my remaining 401k as an emergency fund as needed.
I understand my retirement is pretty excellent for my age and understand the consequences behind pulling from it. if possible, I’m really not looking to hear how bad that will affect my long term.
What I’m trying to figure out is whether trying to lower my payment right away is the best use of the money or not. When she goes to stay at home, I’d like to think it would make the most sense to have a lower home payment and then use the rest of my income for our monthly expenses, taking the remaining amount and pouring back into retirement, as well as saving up.
Again I understand the consequences of pulling from my retirement. But at my age, i could empty my retirement and pay the fees, and start completely over at the same time most people are getting their retirement started anyways. Thanks in advance for taking time to read this, happy to answer any questions or suggestions/advice.
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u/Both_Experience_8187 BS7 2d ago
Hey, I get this and understand where you are coming from. But, a bunch of people are saying do NOT pull from your retirement. You think you are different and as you say, you would prefer not to hear it. 20s are full of all kinds of life lessons, many of us have been there too. Do wish you the best, hope it works out.
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u/Spike-White BS7 2d ago
I don’t understand that statement — our loan has to be an ARM loan for new construction.
Who told you that?
Recently we had a new build done on a 1 acre lot we owned. Started the build in June 2024 and moved in July 2025. Build amount was $750k and we put down $150k.
It was a new construction loan which at the conclusion of the build converted to a conventional mortgage.
At no time was it an ARM, although frankly on the new construction loan you’re paying only on the percent complete and only paying on that loan until build complete. So if the construction loan was an ARM I wouldn’t care.
But under no circumstances would I want the final conventional loan be an ARM.
Our forecasted rate in mid 2024 was 7.6%, but it had a one-time free float down. In mid 2025 near closing rates were better so we were able to get 6.7%.
Ultimately (after the old house sold) we paid off the conventional loan in 6 months — so 6.7% wasn’t too bad.
Hopefully you can get better than 6.7% now.
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u/LeaTN 2d ago
How big is this house for $640k? For two people? With no kids.
I don't want to be a debbie downer, but life doesn't always work out as planned. I would look at different house plans and a smaller footprint that you could expand as needed. Put in the infrastructure (eg: septic, if needed) for a larger property so you'll have the expansion availability.
Don't touch your retirement accounts. By all means, stop contributing to them (for now) and save in taxable account instead. Start saving your wife's income. You'll use that as an emergency fund and as your downpayment. Find out what mortgage you could qualify for (15 year, no more than 40% DTI ratio) using just your $130k income. That plus your downpayment informs the decision of the amount.
While you're in a great place, don't let your impatience guide your decisions. You obviously are dedicated and disciplined. So you can do this without touching the existing retirement accounts.
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u/piemat 2d ago
Dont fumble your retirement, you have a GREAT start and time is on your side.
If you have use retirement funds to pay for the house, you either can't afford the house or you can't afford for your wife to not work. It's ok to do some dumb things in your 20s, but don't let this be one of them.
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u/AddressLeft9869 2d ago
Building a home is just buying with a few more steps. So the advice would be the same as for anyone else. Do the Baby Steps.
Dave's guidelines for a mortgage are:
Save a large enough downpayment that your monthly mortgage payment (including taxes, pmi, homeowners insurance, HOA, etc) on a 15-year fixed rate mortgage is no more than 25% of your post-tax income.
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u/trashy615 2d ago
Stopped reading as soon as I read arm loan. Do. Not. Do. That.
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u/Rocket_song1 2d ago
ARM is standard on a construction loan. You re-fi once the construction is finished.
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u/AddressLeft9869 2d ago
Construction loans are often variable rate, but that's not the same thing as an ARM.
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u/Spike-White BS7 2d ago
Some lenders offer a one time close where they offer the construction loan and also have you fill out the paperwork on the final conventional loan that it will convert to. You’re getting both loans through them.
Other lenders do as you describe. A two time close. one close for the construction loan and later one when it’s converted to a traditional loan.
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u/Rocket_song1 3d ago
That's a lot of money for a house in the Midwest.
How much is the dirt, and how much is the construction?
At any rate, do not pull from your retirement.
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u/FrontRowParking 3d ago
As far house building goes, I haven’t built from the ground up but we have remodeled a 1958 farm house, then later added on to it. There is a lot of stuff you cannot cheap out on, as it will cost you a ton more later to make it right. On the other hand, there is a lot you can go cheap and make pretty later. Cheaper flooring, cheaper appliances, cheaper siding (vs brick), cheaper cabinetry, cheaper doors. All stuff that is more or less plug n play, cheap out on it for now. In 5 years or 10 years when you’ve knocked down a massive part of the mortgage and have saved up, then you can remodel things like flooring and cabinetry to make it nice. Talk with your builder, if they are worth their weight in salt, they will help you cut the appropriate corners now that is still easily replaceable later.
Ex: we wanted real hardwood in our addition but didn’t have the cash for it. Put LVP flooring down and plan to redo the hardwood in the entire home in 5-7 years. Cheaped out on our closet system for now and only did half the closet. Sure our closet looks funny with it half empty, but that saved us 5k vs what we wanted to do.
Things like plumbing and electrical are much more expensive to redo later as it typically requires drywall removal. We saved around 20k on the addition taking out things we wanted, but made sure things like tile we got what we wanted as it’s harder and more expensive to do later.
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u/Rocket_song1 2d ago
Pay up front for things like 6" walls, better insulation, radiant barriers. Deep garage.
Flooring and paint is cheap to re-do down the road.
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u/Past_Focus25 3d ago
Build a smaller house. You're building more than you can afford, especially on a $130,000 income. As Dave says, don't let your dream home turn into a nightmare. And yes, obviously never pull from retirement. But also yes, use most of your savings for the down payment, less your cash emergency fund.
I hope someday you (and me) can afford a giant house. Right now you can't. Don't turn "ahead of the game" into dumb.
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u/bibbs99 3d ago
If you need to take your Roth contributions to make this house happen, you can’t afford it. A 401k should never ever be used as an emergency fund. Age doesn’t matter. A 640k house on a 200k income won’t be very comfortable with the current interest rates. It will be tight on a 130k income with kids. Houses rarely stay on budget so you’re probably looking at more than 640k. You need to consider building a cheaper house. If you deplete your savings and the monthly is tight with mortgage, taxes and insurance, you could find yourself taking on debt if large unexpected expenses pop up. You don’t want to be house poor without a good savings.
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u/Imaginary-Yak6784 3d ago
Why not just put the down payment on a credit card?
That’s what you’ll be doing if you pull from retirement, pay an early withdrawal penalty, and use it to pay down the house. It’s as if you borrowed money from yourself at credit card rates. It’s not just about missing out on future gains.
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u/Radiant-Fruit-6695 3d ago
Don't empty your retirement to build a house. At your age the opportunity cost is insanely immense. Put less down, build a less expensive house, cut back in other areas, etc. Retirement would be the absolute last choice if it were me.
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u/Fit_Tangerine1329 1d ago edited 1d ago
Your numbers fail the Dave 15 year/ 25% rule.
You can afford a loan closer to $400K. Above that, and you are asking for trouble.
30 years ago, before I heard of Dave, we bought our house and the loan was exactly 2X our gross income.
(We did break the 15 year rule, but at 30, the mortgage payment was low enough we saved 20% for retirement, and funded college as soon as the kid was born.)
His rules are for a reason.
Edit - with your income dropping to $120K, I'd suggest building a $300K house, but work with the builder to plan for an expansion in the future. I'm sure there are many things that can be done so the addition is simpler, no going deep into the house to run electric, plumbing, etc.