Loan Lessons: Are You Ready to Buy a House?

First-time homebuyers often ask, "When is the best time to buy a house?" This implies that there is a perfect month or season to make a home purchase. But this is often the wrong question. Sometimes the better question is, "When will I be ready to buy a house?"

This frames the question differently and takes into account a variety of financial and lifestyle variables. Here are six questions to help you determine if now is the right, or wrong, time to buy a home.

1. Have you talked to a mortgage lender?

Before looking at real estate, buyers often meet with lenders to find out what kind of home they can afford. This informal credit evaluation is referred to as a mortgage prequalification.

A good lender can educate you about far more than current interest rates and the difference between fixed rate and adjustable-rate mortgages, though. "A lender can explain what costs you should expect in your monthly home payment including principal, interest, taxes, homeowners insurance, mortgage insurance, and any homeowners association dues," says former real estate agent Ron Humes.

2. Have you saved at least 3% of the purchase price for a down payment?

While most lenders prefer a down payment that's 20% of the purchase price, the minimum required is 3% for conventional loans and 3.5% for FHA loans. Before feeling relieved about the lower amount options, though, understand that when your down payment is less than 20%, you'll have to pay for private mortgage insurance. You'll also have a higher monthly mortgage payment.

It's also wise to save at least six months of expenses in an emergency fund, too, in case you lose your job or face another type of financial setback.

3. Can you afford both the expected and (often) surprise costs of homeownership?

Many first-time buyers are surprised by closing costs. These can include fees for a home inspection, appraisal, title search, title insurance, and credit check.

Then there are the pre-move-in expenses such as painting or replacing carpeting, moving costs, and any utility connection fees.

In addition, if your new home is larger than your previous one, you might want additional furniture to fill expanded living or sleeping spaces. If you'll have a yard and driveway, plan to buy equipment for outdoor maintenance or budget for a landscaping service.

"Set aside 1.5% of your home's value for repairs and annual maintenance," advises Dan Green, founder of Homebuyer.ai.

4. How long do you expect to live in the area?

You might not be ready to buy if you plan to move in two or three years, says Eric Jeanette, owner of Dream Home Financing, who recommends a two-to five-year timeline. "Anything less than that means you may lose money when factoring in closing costs on your purchase plus Realtor fees on the sale," he says.

5. Do you know your way around a toolbox?

Face it: It's not if you'll have a problem that requires a repair, it's when. The cost-effective option, especially for first-time buyers who might have less disposable income, is the do-it-yourself approach. If you aren't handy, budget for outside help.

6. Are you ready and prepared for a new lifestyle?

Some homebuyers find they have to spend less in other areas of their lives to afford homeownership expenses. For example, moving from an urban to a suburban area often means buying a car or spending more on public transportation—or just forgoing former activities because of the extra time and expense created by the new location.

"You may need to sacrifice some things to make homeownership a reality, and laying it all out to see can help you keep that in perspective," says real estate agent Shannon McNulty.

Attorney Martin Peters refers to this as the emotional component. "You have to be mature enough to recognize the amount of upkeep and work it takes to keep a home operational," he says.

So, is this the right time to buy a house? If the answer is "yes," avoid rookie mistakes by hiring a real estate attorney. It could prevent problems while saving you time and money, both now and later.