4 Signs You're Not Ready to Buy a Home

by Maurie Backman | Updated July 19, 2021 - First published on Feb. 13, 2021

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Itching to buy a home? If these things apply to you, you may want to hold off.

With mortgage rates sitting at record lows, you may be inclined to start looking at listings and think about buying a home. But are you really ready to take that leap? If these things apply to you, you may not be ready just yet.

1. You're not used to following a budget

Buying a home is a huge undertaking, one that may require you to rethink some of your spending and cut back in certain areas. As such, if you're not in the habit of sticking to a budget and aren't really open to the idea, then homeownership could end up being disastrous for you. Once you buy, you'll have more than your monthly mortgage payment to deal with. You'll also have to come up with the money for property taxes, homeowners insurance, maintenance, and repairs. That could prove challenging if you have no idea how you currently spend your paychecks and have no interest in digging deeper.

2. You already have a lot of debt

Having some level of debt shouldn't necessarily stop you from getting a mortgage. After all, it's conceivable that you might, for example, be paying off a car. But if you have a lot of debt relative to your income, then you may want to sit tight and work on paying some of it off before applying for a home loan. If you load up on too many monthly obligations, you might quickly start to fall behind somewhere and wreck your credit in the process (not to mention put yourself at risk of losing your home for not keeping up with your mortgage payments). Furthermore, having too much debt could actually cause your mortgage application to be denied. So there's a lot to be gained by shedding, say, a couple of credit card balances before moving forward with a home purchase.

3. You don't have much saved for a down payment

Some mortgage lenders will let you buy a home with less than 20% down. And if you're limited in down payment funds, you may qualify for an FHA loan, which lets you put as little as 3.5% down. But if you don't have a more sizable down payment at your disposal, you may want to hold off on your purchase. If you don't put down 20% on a conventional mortgage, you'll be hit with private mortgage insurance, a costly premium that's generally tacked onto your monthly payments. And with an FHA loan, you'll pay an upfront premium and ongoing monthly premiums as well. You may be better off waiting until you can put down enough money to avoid having to add to your mortgage costs.

4. You have little or no emergency savings

Even if you buy a home that's in great shape, at some point, things are bound to go wrong. And if you don't have money set aside for emergencies, you might really struggle when you're hit with a home repair. A better bet? Build a solid emergency fund before you set out to buy. That fund should, ideally, have enough money to cover at least three months of living expenses. That way, if you lose your job, you'll also have a means of keeping up with your mortgage payments while you seek out work.

There are plenty of good reasons to become a homeowner -- tax benefits, stability, and the opportunity to build equity in a place of your own. But if the above factors apply to you, it's probably the wrong time to apply for a mortgage and take on the responsibility of owning property. Instead, you may want to hold off and work on improving your financial picture so you can approach homeownership from a more stable, confident place.

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