4 Ways to Tell You Can't Afford to Buy a House

Time for an honest, clear-eyed look at your finances.

It can be very tiresome to be a renter and watch your rent payments climb over time. If you're wondering if you're ready to take on a mortgage loan and become a homeowner instead, you should consider whether you can truly afford it. If any of the following conditions are true for you, I hate to say it, but you should probably wait a bit longer -- and work on your finances in the meantime.

1. You live paycheck to paycheck

If I've said it once, I've said it at least 50 times: Owning a home is expensive. This isn't to say that renting isn't also expensive, but when you rent, your costs are different. If you're currently renting and finding yourself out of money (or nearly out of money) at the end of every month, it's not a good idea for you to buy a house right now.

While many finance gurus will tell you that you should stop buying that daily coffee as well as all the other small purchases that bring a little bit of joy into your life, increasing your income is likely a better move if you want to stop living paycheck to paycheck. This could look like picking up a side hustle, asking for a raise at work, or even changing jobs altogether. It's a good time to be a job seeker, especially if you have valuable skills to offer.

2. You have no emergency fund

Did I mention that homeownership isn't cheap? If you're a renter and something breaks in your home, it is generally not on you to get it fixed. But if you own the house and the hot water heater decides to go kaput, you'll have to foot the bill for a new one. This is why it's a terrible idea to buy a house without an emergency fund saved up. In fact, if you're buying an older home, you might even want a specific pot of cash to serve as a maintenance fund. This way, you can tackle those problems as they arise, and maybe avoid going into debt when the inevitable happens.

3. You have a lot of debt

Speaking of debt, if you have a lot of it, especially of the high-interest credit card variety, it's likely not the best move for you to buy a home until you get out from under it. And credit card debt is particularly insidious because of the variable interest rates it comes with. Your balance will just keep climbing over time, so it's best to chip away at it as much as you can before looking into mortgage loans. Plus, lenders consider your full financial picture when deciding whether to approve your loan application, so you may find it difficult to get a mortgage loan at all if you have a lot of debt to pay off.

4. Your credit score needs work

Speaking of getting approved for a mortgage loan, your credit score is of the utmost importance here. If you're hoping to buy a home with a conventional loan, your target is likely 620, but you can buy a home with a lower credit score if you use a government-backed mortgage like an FHA loan. That said, the higher your credit score, the more likely it is that you'll be offered a better interest rate, and rates are up right now, making this even more crucial. As of this writing, Freddie Mac is reporting the average rate for a 30-year fixed-rate loan is 6.32%. Ouch.

It's a lousy feeling when you want to buy a home of your very own, but your finances aren't in the right shape for you to do so. Taking steps like increasing your income, boosting your credit score, and paying off some existing debt can make a world of difference, though.