Are you ready to buy a house? This is what Suze Orman says

Image source: Getty Images

Here’s how to know if you should take the plunge.

Key points

  • Buying a home is a major financial undertaking that you need to be prepared for.
  • Financial expert Suze Orman says buyers should be able to check these boxes before buying a home, including testing your new budget.

Some people wait until they reach a certain financial level to have a baby. Just as it’s a smart thing to do, you should also wait until your financial situation is in order before buying a real house.

If you’re not sure if you’re ready to take on the responsibility of becoming a homeowner, you’re in good company. Luckily, financial expert Suze Orman has some helpful advice. Here are three things she thinks you should do before you go ahead with buying a home.

1. Build an emergency fund to cover eight months of living expenses

Most financial experts will tell you that having an emergency fund is important. That way, you’ll have money in your savings account to use in case you run into a problem like job loss or an unexpected big bill.

But while most experts agree that saving enough to cover three to six months of living expenses will be enough, Orman thinks you should go beyond that point and amass enough savings to cover eight to 12 months of bills before buying a house. Saving that extra money could put you in an even safer place from a home buying perspective.

2. Save enough for a 20% down payment

Although many mortgage lenders will accept less than 20% of a home’s purchase price at closing, Orman thinks it’s important to get to at least 20%. The reason?

If you put down 20% on a conventional loan, you’ll avoid private mortgage insurance, or PMI, which is an expensive premium you’re charged to protect your lender. The PMI can easily equal 1% of your mortgage, so if you borrow $250,000 to buy a house, you could be paying $2,500 more per year.

To be clear, however, the 20% down payment you offer should be separate from your eight months of living expenses for emergencies. You should do not draw from your emergency cash reserves for the purpose of buying a home.

3. Take a ride with your new budget

Buying a home could lead to an increase in your bills. Orman says that before you buy, you should try to figure out what your new budget will look like, then make sure it’s sustainable based on your income and lifestyle.

So, let’s say you’re renting a house now and currently spending $1,200 a month on housing. If you think your housing costs will increase to $3,000 once you buy a house (taking into account things like property taxes, insurance, maintenance and repairs in addition to your mortgage payments monthly), you should invest $1,800 of your salary in savings each month for six months and see how it works for you.

If you can swing it, great. Otherwise, you may have to wait to buy a home or rethink your price range.

Home ownership can be extremely rewarding and promote financial stability. But it is important to intervene at the right time. It pays to follow Orman’s advice and achieve these milestones before buying a home. It could save you a world of financial regret.

A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage

Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.

Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.

Comments are closed.