3 Signs You're Not Ready to Buy a Home This Year

There are plenty of benefits to owning a home rather than renting one. Instead of paying your landlord money each month, you're putting that money toward a mortgage that helps you eventually own a valuable asset outright.

Plus, as a homeowner, you're the one who gets to set the house rules. You don't have to listen to a landlord who might ban dogs or insist that you leave the walls drab gray like they're currently painted.

But while being a homeowner certainly has its advantages, you may not be ready to buy a home right away. Here are a few signs that you probably shouldn't be making an offer on a house in 2024.

1. You don't have a large enough down payment for a conventional mortgage

Most conventional mortgage lenders require a 20% down payment to avoid private mortgage insurance. Given that the median existing U.S. home sold for $384,500 in February, according to the National Association of Realtors, coming up with 20% may be tough.

Now it may be possible to sign a conventional loan with 3% down. But if you don't have that much available for a down payment on the sort of home you'd want, then you may want to reconsider buying this year.

Putting down just 3% with a conventional loan, or 3.5%, the minimum required for FHA loans, is dangerous because you're starting off with very little equity. That's a risky thing to do at a time when home values are so elevated.

If you make a minimal down payment this year and the value of your home drops in a year or so, you could end up underwater on your mortgage. If you don't have the funds to put at least 5% down, consider it a warning sign that you may want to wait and save more money.

2. You don't have a complete emergency fund

When you buy a home, you don't always know exactly what sort of repairs you're signing up to cover. Even if your home undergoes a thorough inspection before you close on it, issues might arise shortly thereafter.

That's why it's so important to have a complete emergency fund when you're buying a home. You don't want each repair you encounter to lead to costly debt.

Also, you never know when you might lose your job. Without an emergency fund, you risk falling behind on your mortgage. So if you don't have enough money in the bank to cover three months of essential bills at a minimum, then you're better off waiting to buy until you've reached that savings milestone.

3. You have a lot of high-cost debt you're still carrying

TransUnion reports that U.S. credit card debt reached $1.05 trillion during the fourth quarter of 2023. So if you're carrying a balance yourself, you're not alone. However, when you're already juggling expensive debt, taking on new debt can read like an imprudent financial decision.

To put it another way, think about how hard it's been to pay down your credit card debt. If you take on the expense of a mortgage, that debt might linger even longer, thereby costing you more. So you may want to hold off on buying a home until your credit card debt is gone or at least considerably whittled down.

Also, one of the factors that mortgage lenders consider is your debt-to-income ratio, which measures how much debt you have relative to your income. If yours is too high, you might struggle to get approved for a mortgage.

You may be eager to buy a home this year and stop paying a landlord rent. But if these signs apply to you, it may be that 2024 isn't the best time to buy a home. It could pay to work on building savings, paying down existing debt, and revisiting the idea of homeownership in 2025.