Can You Afford To Buy A House Right Now?

You're tired of "throwing money away" on rent. You want to buy your own home. But you're not sure if now is the right time.

You hesitate about "now" for two reasons: time and money. In term of time, you're not sure if you're committed enough to staying in one place. How long will you really live in this home? And on an economic level, you're not sure if you can afford all of the expenses that come with having a mortgage.

Before you do something impulsive, let's assess whether you should buy a house right now –- or whether you should wait.

Home Prices

In most parts of the U.S., home prices are currently higher than they've been in the past five years. Does this mean that you should lock-in the current prices before they rise even higher? Or does it mean that we might be heading for another downturn?

The best answer: Do what's right for you. If you're planning on staying in your home for a decade or more, short-term fluctuations in the houses' underlying value shouldn't make a difference. After all, the primary purpose of your home is to provide you with a place to live, coupled with the opportunity to grow equity over time.

So don't fret about the possibility of an interest rate hike in 2015 that might trigger a drop in demand. Don't stay up late, worrying that builder oversupply will glut the market. If you're an owner-occupant who wants to buy a home where you can raise your children, these issues aren't going to make-or-break your financial future.

You should, however, be concerned about whether or not you can personally afford the expenses. Let's take a look at some of the costs that should factor into your decision about whether to buy now or wait:

Do You Have a 20 Percent Down Payment?

Most lenders require a 20 percent downpayment before they'll grant you a mortgage. If you can't come up with such a hefty downpayment, they'll charge "private mortgage insurance," or PMI, to make up the difference.

PMI rates vary from lender-to-lender, but generally cost 0.05 percent to 1 percent of the total loan amount. At 0.05 percent, you'll pay $41.50 per month for every $100,000 worth of loan that you carry.

If you're holding an FHA-insured loan, you pay two different mortgage insurance premiums. The upfront premium is 1.75 percent of your loan size, and it will be added to your borrowed amount (thus increasing your monthly costs). You'll also pay a second premium, which is assessed annually and billed monthly. This second fee, often known as "monthly mortgage insurance," will cost 1.3 percent annually if you carry a 30-year mortgage and put at least 5 percent down.

The bottom line? Not having a 20 percent downpayment on-hand can be a very expensive proposition. If you borrow $200,000, for example, and you're charged 1 percent PMI, you'll be forking over $166 per month – not an insignificant sum of money.

Do You Have Room in Your Budget for a Higher Mortgage Payment?

Your mortgage payment is comprised of four items: principal, interest, taxes and insurance. (Together, these are known as "PITI.")