6 signs you probably can’t afford to stop renting

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You’re not ready to buy a house if you don’t have a specific savings fund for a down payment — your emergency fund won’t cut it.
It may also be a good decision to keep renting if your debt payments exceed 43% of your gross income, your credit score is below 620, or there’s a possibility you will relocate for a job.
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If you think renting is expensive, you’d be surprised by all the hidden costs that come with homeownership.

Buying a house is a huge financial commitment. While some people consider real estate a reliable wealth generator — or decide to buy a house because they want to put down roots — it’s not feasible, or even practical, for everyone.

Here are six signs you should keep renting for now:

1. You don’t have a separate down payment fund

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If your emergency fund doubles as your down payment fund, you’re not ready to buy a house, says Jill Schlesinger, a certified financial planner and business-news analyst for CBS.

An emergency fund is usually your first line of defense against debt, and being a homeowner won’t render you immune to unexpected expenses such as a job loss, medical emergency, or family crisis. Moreover, owning a home can come with unforeseen expenses of its own, and not having a cash cushion can lead to fearful decision-making, or "scarcity mode," Schlesinger said.

To afford a 10% down payment on a home in Detroit, America’s cheapest big city to buy a house right now, you need nearly $19,000 — and that doesn’t include the cash you’d need for closing costs.

2. Your monthly housing costs exceed 30% of your gross income

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If you want to build wealth quickly, you should aim to spend around 30% of your after-tax income on housing. That means your total cost of housing shouldn’t exceed 30% of your take-home pay.

If you’re already at the limit paying for rent and utilities, it’s probably not time to buy a home just yet.

The monthly cost of owning a home is more than just your mortgage payment. If you put down less than 20% of the purchase price, you may need to also pay private mortgage insurance. And don’t forget about property taxes, homeowners insurance, utilities, and home maintenance.

3. You can’t afford to buy furniture

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If you’re buying a home, chances are you’ll have more space — and more space means more furniture.

Colin Moynahan, a certified financial planner near Charleston, South Carolina, told Business Insider’s Liz Knueven that while buying a house is certainly one of the biggest expenses most Americans will face, furnishing and buying appliances for a new home can be a huge expense, too.

It’s something that Moynahan says new homeowners might not think about. "They just spent all this money on the down payment. Now, you gotta furnish the place," he says.

Then, there’s the fact that expenses start to compound when these things are financed. "Next thing you know, they’ve got a new credit card, they’ve maxed the balance out, and they’re paying on that for the next five years," says Monhoyan.

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