4 Signs You're Not Ready to Sign a Mortgage

There are many benefits to buying a home rather than renting one. But to go that route, you'll generally need a mortgage (unless you happen to have a heaping pile of cash sitting in the bank that could cover a home purchase outright).

When you sign a mortgage, though, you may be committing to making payments on a home for a 30-year period of time. So it's important to make sure you're in a good place to take on that loan. Here are some signs that you may not be ready.

1. You haven't crunched numbers to set a home-buying budget

Before you make the decision to buy a home, you should know how much house you can afford. Generally, a good rule of thumb is to make sure your total housing costs, including your mortgage payments, homeowners insurance premiums, and property taxes, do not exceed 30% of your take-home pay. But if you don't know what that number looks like, then it's probably too soon to be looking at getting a mortgage.

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2. You don't know what your credit score looks like

Mortgage rates are higher today than they were a year ago. For the week ending April 20, the average 30-year mortgage rate was 6.39%, according to Freddie Mac.

But the higher your credit score is, the more competitive an interest rate you might snag on a home loan (or any loan, for that matter). And on the flipside, if your credit is poor, you might get stuck with a really high interest rate on a mortgage that makes a home unaffordable. So before you apply for a mortgage, it's important to know what your credit score is -- and take steps to boost your credit score if it needs work.

3. You don't have an emergency fund

Once you purchase a home, you might face your fair share of unexpected expenses, like repairs. It's important to have a solid emergency fund before signing a mortgage. That means having enough cash to cover at a minimum three months of essential living costs.

4. Your income isn't steady

When you rent a home and have a good relationship with your landlord, they may be understanding if your fluctuating income sometimes means you're a little late making rent. But mortgages don't tend to be so flexible.

You're generally required to make your payments on time to avoid credit score damage and other consequences, and being late repeatedly could damage your credit to an extreme degree. That's why it's important to have a steady income before you sign a mortgage.

Now, this isn't to say that if you're self-employed, you shouldn't get a mortgage or buy a home. Plenty of people with variable income buy homes and manage the associated costs just fine. Rather, if your income isn't in a place where you can anticipate a certain minimum monthly paycheck, then you may want to hold off on homeownership.

When you sign a mortgage, you're making a big commitment, so it's important to make sure you're really ready. And if any of these signs apply to you, you may want to put your plans to buy and finance a home on hold for the time being.