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Should you buy a house? How to know if you're ready.

Yahoo Personal Finance· Getty Images
Updated 7 min read

All the information about mortgage interest rates and home prices may be buzzing around your head, but those are not the only considerations to help you answer the important question: When should I buy a house? Real estate market conditions matter, but so do your life stage and personal finances.

Buying a home is both an emotional decision and a financial choice, especially for first-time home buyers. There’s no one-size-fits-all answer to tell you when to buy a house, but there are some indications that can help you make this critical choice.

Dig deeper: Is now a good time to buy a house?

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While you should pay attention to local housing market trends such as interest rates, home prices, and how fast homes sell, some signals suggest it may be the right time to buy a home.

If you’re ready to settle into a town, neighborhood, and home that you’ll stay in for several years, that’s one of the best indications that you should buy a house. A house ties you to a location in a way that a rental home doesn’t because you would need to sell the property or rent it to tenants if you decided to move. That can be more costly and complex than ending a lease.

You can only see so far into the future. But if you have a job that provides consistent income and expect to stay there for the next several years, that security can help you qualify for a mortgage loan. More importantly, you can feel confident about your financial future.

As a homeowner, your monthly housing payment will include principal, interest, taxes, and insurance (PITI). In addition, you may need to pay homeowner association dues and have a budget for home maintenance and repairs. You can use an online calculator or ask a real estate agent or mortgage lender to estimate the payments on homes in your area.

“Comfortably afford” means you’ve considered your complete budget and lifestyle choices that you may not want to change, such as travel or consistent contributions to your retirement fund.

If your rent is going up, your landlord is selling your rental home, your family size is changing, or you’re relocating, this may be the time to think about buying instead of renting again. If you can afford to buy and intend to stay in your next home long-term, this may be an excellent time to look for a permanent residence.

Depending on the mortgage program you choose, you may need 0%, 3%, 3.5%, or even 10% of the home price for a down payment. In addition, closing costs range from 2% to 6% of the home price. If you buy a $400,000 home, you will need at least $12,000 for a conventional loan with 3% down. If you choose to make a down payment of 20%, you will need $80,000. Then, you’ll need roughly $8,000 to $24,000 for closing costs.

You’ll also need savings for moving costs, an emergency fund of three to six months of expenses, and savings to cover home repairs. Some experts suggest setting aside 1% to 2% of the home price annually for repairs and maintenance, which would be $4,000 to $8,000 on a $400,000 home.

Learn more: How much house can I afford? Use our home affordability calculator.

Borrowers typically need a credit score of at least 620 to qualify for a mortgage, although some loan programs allow scores as low as 580. (An FHA loan will even allow 500 if you have a 10% down payment.) However, a credit score of 740 or higher is generally needed to qualify for the lowest mortgage rates. A high credit score can also indicate that you manage your finances well — another sign you may be ready to buy a home.

Read more: How to buy a house with good (but not great) credit

Market conditions in your area may influence your answer to the question, “Should I buy a house?” However, your personal finances and life stage also play a part in your choice of when to buy a home. There are several signs that this may not be the right time to buy a house for you.

If you’re in a stage of life when you want the flexibility to switch careers, relocate, change your family configuration, or move in with a partner, this may not be the best time to commit to homeownership.

Not every home requires a lot of work, but homeowners are responsible for routine maintenance. In some cases, a newly built home, a condo, or a townhouse can ease the burden of homeownership, but even then, you’ll have a few tasks to handle. Calling a landlord or apartment maintenance to take care of things may fit your lifestyle better. However, this may not be a big problem if you can afford to pay professionals to make repairs or if you have people in your life who are willing to help.

Buying a house is a big financial commitment, so it’s best not to take on the burden of a mortgage payment until your debt is under control. Depending on your debt situation, you may have a low credit score or a high debt-to-income ratio (DTI), which compares the minimum payment on all monthly debt with your gross monthly income. Either of those situations can make it hard to qualify for a mortgage.

If there’s a chance you might lose your job or be forced to relocate to stay employed, you don’t want to be tied to a house that you’ll need to sell quickly. It’s better to wait until you’re confident your employment is steady before committing to a long-term home.

New homeowners are often surprised by the higher cost of owning than renting. Utility bills, regular maintenance, landscaping, and repairs often cost more than anticipated. If your budget is already tight, it may be best to wait until you have reduced other expenses or increased your income to buy a home.

Learn more: How to save for a house

Maybe you have the cash, steady income, and desire to buy, but the type of house you want isn’t in your price range or available in your preferred neighborhood. While nearly every home buyer needs to compromise on something, you may want to wait until you can buy something you love instead of committing to years in a home you ultimately don’t want.

You can always calculate the cost of rent versus owning in your community, but generally, homeownership provides financial security and contributes to household wealth. The median household wealth of homeowners in 2022 was $396,200, nearly 40 times the median household wealth of $10,400 for renters, according to the Federal Reserve.

While the benefit of buying a home as soon as possible is that you can build equity over time as you pay down the mortgage, you may not be emotionally ready to buy. For example, if you want the flexibility to move within your city or relocate, you may want to wait to buy a house.

Timing the housing market can be difficult, even for expert real estate investors. While you should consult a real estate agent, a mortgage lender, or a financial adviser to avoid buying when home values may decline, you should base your decision about when to buy a house more on personal circumstances rather than the economy.

This article was edited by Laura Grace Tarpley.