When is the right time to buy a house?

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timetobuyahouseAs I inch closer and closer to my seventh year of adulthood, I’ve started to get the itch — the itch to own a place of my own. It came unexpectedly, as I’ve always loved renting, but somewhere between Pinterest and RealEstate.com, it came nonetheless.

It’s not quite the right time for me to buy right now, but it may be the right time for you if you are also feeling itchy. Let’s examine when you should start thinking about buying a home.

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1) When you’re out of debt. You can agree or disagree with this, but it’s easier to take on the weight of a mortgage once your consumer debt is paid off. It will also be easier to qualify for the best mortgage terms without high credit card utilization. Hold off on purchasing a home until you’ve paid off all of your credit card debt and at least most of your student loan debt. The lower your necessary monthly expenses, the better.

2) When you have the 20% down payment. A mortgage is a huge responsibility, make sure you have an adequate down payment. This will help you avoid PMI (private mortgage insurance) and ideally keep you from starting your life as a homeowner with an upside down home. A 20% down payment can be a lot of money, especially if you live in a high cost of living area, but take the time to save up and rent in the meantime.

3) When you have a decent emergency fund. Homeownership can be very expensive, especially if a major appliance breaks, so you will likely need a larger emergency fund than a renter needs. Save up enough to cover any anticipated repair or maintenance expenses, as well as extra money for unexpected expenses.

4) When you plan on staying in the same place for a long period of time. Renting is a very flexible arrangement, with leases generally ranging from 6 months to one year. When you own, you can buy and sell frequently if you want, but there are costs on the front and back end, and it is much harder to sell a home than to walk away from a lease.

5) When the monthly costs won’t exceed about 25-30% of your income. Housing costs take up a large chunk of most families’ budgets. To keep from stretching yourself too thin, try to keep your mortgage payment, property taxes, and insurance below 30% of your monthly expenses.

While there are other important considerations, such as the state of the housing market and interest rates, you need to be prepared yourself before you even think about the next real estate bubble. Get your finances in order before you buy a home and your American dream won’t turn into a nightmare.

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Erin is the founder of Red Debted Stepchild, a blog about her journey to getting out of debt while still enjoying life in Portland, OR with her husband. She enjoys reading, eating, traveling, and crunching numbers on her numerous spreadsheets. Sometimes she remembers to tweet at @reddebted.