For a few years now, you have been itching to buy your first home. Rental life is beginning to wear on you because you feel like you’re throwing money down the drain. Also, most rentals don’t allow you to customize your home to your specific liking.

Homeownership offers the opportunity to create a home of your dreams; maybe not from the ground up, but once the home is yours, you have the freedom to recreate the inside and outside to reflect your or you and your spouse’s personal style. Owning a home also offers benefits like appreciation, primarily if the home is located in a prospering neighborhood, or on a sprawling piece of land, home equity, a capital gains exclusion (when you sell your home), and tax deductions.

But the question remains: are your finances in shape to buy a home?

To figure out the answer, ask yourself the following three questions.

1. Are you debt-free (or have minor debt) with a robust emergency fund?

For those wondering about their student loan debt, you can be approved for a mortgage loan while managing your student loans; it’s just a bit tougher.

While waiting to buy a home until you are wholly or nearly debt-free seems like a smart idea, some Americans do not adhere to this rule. According to finacial guru Dave Ramsey, a great way to pay off debt is to use the snowball rule by paying off the smallest amounts of debt first to the largest debts you owe. This formula allows you to gain financial momentum. Once you have paid off your debts (minus student loans, unless you can do so), begin adding the mone you put toward paying off your debts into an emergency savings fund.

When you own a home, you will undoubtedly come across unexpected cracks, leaks, and broken appliances that will need repair or replacement. An emergency savings fund allows you access to some or all of the money you need so that repair doesn’t send you to the poor house.

2. Are you able to pay a respectable down payment?

While the dream would be to pay for your home in cash, that’s not a reality for mass amounts of Americans. Shooting for 10% down is reasonable, but if you can pull it off, 20% is even better because ding so allows you to skip paying private mortgage insurance (PMI).

3. Can you pay the home’s closing costs?

Sometimes, home sellers cover the closing costs but ready your finances as if they won’t. Closing costs generally range from 2% to 5% to cover the following charges:

  • Loan origination fee
  • Home appraisal and inspection fee
  • Pest inspection fee
  • Prepaid property taxes
  • Mortgage insurance
  • Title insurance
  • Recording and underwriting fees

On average, a new home in the United States costs $330,000, which would estimate your closing costs between $6,600 and $16,500. For a previously owned home, which costs $245,000 on average, the closing costs could range from $4,900 to $12,250. 

Lastly, keep in mind that closing costs can change throughout the process of buying your home, and the budget for moving expenses often reach into the hundreds, no matter which route you choose.