When to make the leap from renter to homeowner

For many people, buying a home is still the marker of adulthood; it has been part of the American dream for a long time. But that doesn’t mean buying a home is right for everyone, and it doesn’t mean it’s right for everyone at any time. It’s important to know your own personal finance situation and your own financial goals before making the leap from renting to owning a home.

Upfront costs

Buying a home usually requires some serious cash upfront, including for the down payment and the closing costs. There are ways to buy a home with little-to-no money down, but you probably will pay a higher interest rate or incur private mortgage insurance. PMI is often required if you are putting less than 20 percent of the home’s purchase price as a down payment. It’s a good idea to save up before you start looking to buy a home, so you have some money earmarked for those upfront costs.

Monthly means

After you’ve covered the upfront costs, if you are taking out a mortgage, you will have to make a monthly payment. That probably will be made up of your mortgage payment, homeowners insurance and property taxes — and PMI, for some.

When calculating your budget, don’t just look at the mortgage but those other monthly costs too. Many financial experts advise paying no more than 25 percent to 30 percent of your gross income on housing.

That can be a good guideline, but it’s most important that whatever that number is, you are comfortable paying for it. If that seems too high, stick to a lower percentage that leaves you some room for everything else. Especially because you most likely signed on for 15 or even 30 years of those payments.

Sense of security

Speaking of that home-loan term, one factor in deciding whether or not to buy a home is how sure you are that you want to stay in one place. Is your job secure? Do you like the town or city? Can you see yourself staying for the long term?

You don’t necessarily have to live in the home for your entire mortgage term — you could rent out your home at some point or sell it. But what if you aren’t able to when you want to? Will you be OK staying where you are? It’s a good idea to at least think about how long you need to stay in that home to recoup those upfront costs you made. A rent vs. buy calculator can help you determine that point.

Goal check

It’s also important to think about the other goals in your life besides becoming a homeowner. Will using a large chunk of your savings leave you without an emergency fund? Will the monthly mortgage payments be so high that you won’t be able to make any contributions to your retirement fund? Are you putting yourself at risk of not paying down your credit card debt so you can afford your dream house? If owning a home is part of your American dream, it’s best if it doesn’t turn the rest of your finances into a nightmare. It’s a good idea to remember that buying a home is only one of your financial goals.

Bottom line

The decision to buy a home will be personal. Even when you hear of friends and family who get a great deal on a big purchase, it’s got to be the right time and the right home for you. It’s a good idea to learn what you can about the home-buying process and make an informed decision. After all, this is probably the biggest purchase you will ever make, and you want to feel confident if and when you decide to buy a home of your own.