Dave Ramsey has controversial advice for Americans buying a home now | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Buying a home is one of the biggest financial commitments Americans make. While mortgage rates and housing prices often dominate affordability conversations, saving for a down payment can be a challenging, years-long task that prevents younger buyers from entering the housing market.

The sharp rise in inflation that began in 2022 raised prices considerably, making it difficult to balance the cost of living with building a savings nest egg.

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As the cost of housing, food, and utilities continue to climb, many U.S. households remain under mounting financial pressure. This uptick in expenses has made it more difficult for younger generations to hit financial milestones, like buying a home and saving for retirement.

Personal finance expert Dave Ramsey offers unexpected advice on how homebuyers can effectively save for a down payment without sacrificing their entire savings.

Saving for a down payment is one of the main barriers preventing Americans from buying a home, but Dave Ramsey suggests making one small adjustment can improve the process.

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Dave Ramsey explains how homebuyers can balance saving for retirement and a down payment

Saving for retirement requires decades of consistent planning and savings, with many experts recommending that workers max out their employer’s 401(k) matching contributions. Since retirement plans accrue compounding interest, the earlier you start investing, the more time your money has to grow over time.

Most industry experts recommend putting 15% of your annual income — including employer match— toward your retirement plan. However, younger generations in particular are struggling to make a dent in saving for a home while balancing rent payments, student loan payments, contributing to their retirement plans, and the general cost of living.

While it may seem counterintuitive, Ramsey suggests that briefly pausing 401(k), IRA, or 403(b) contributions can help homebuyers reach their down payment savings goal faster, and help set them up for long-term financial stability.

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“If you’re planning to buy a house in the near future, it’s okay to hold off on your retirement savings and put that money toward your down payment,” Ramsey wrote.

However, he warns that pausing your retirement savings should be brief, and you should resume contributions once you’ve closed on a home.

“Remember: You’re in charge of how gazelle intense you want to be. If that’s what you decide to do, that’s okay! It’s only temporary. Once you’re sipping coffee in your new breakfast nook, you can get right back to putting 15% toward your retirement goal,” he continued. “Just make sure this is only a quick detour (like a year or two), not a five-year pause.”

Dave Ramsey warns of the risks of withdrawing from your 401(k) to finance a home

While taking a temporary break from retirement contributions to focus on buying a home can be helpful, making early withdrawals from your retirement account can have major ramifications.

If anyone under 59.5 years old withdraws money from their 401(k), IRA, or 403(b) plan, they will be subject to pay any taxes owed and an additional 10% early withdrawal fee.

Although it may seem tempting to tap into retirement savings to cover a home down payment, this approach can jeopardize your financial future if it takes longer than anticipated to recoup those losses.

“Pro tip: Don’t borrow from or cash out your retirement accounts to speed up your down payment savings,” Ramsey continued. “Not only will you get hit with taxes and early withdrawal penalties, but you’ll also tank the long-term growth of your retirement savings — costing you hundreds of thousands of dollars at retirement. Yikes.”

Diverting extra savings from paused retirement contributions toward a down payment nest egg can give your savings an extra boost without facing taxes and penalties.