Suze Orman: When to Pay Off—or Take On—a Mortgage

The Rental Crunch

Housing prices are stabilizing, a 30-year fixed mortgage has a phenomenal 3.75 percent interest rate, and rents are up about 5 percent nationwide. Before you head out to an open house, though, make sure you meet the guidelines below to see if you're really ready to buy.

You don't plan to move for at least five years. Any sooner, and you could end up losing money if your home hasn't appreciated the 8 percent or more it will take to cover your selling and relocation costs.

You factored in property taxes, insurance and maintenance—not just your mortgage costs—when deciding on your budget. Don't assume your current rent is a good reflection of how much house you can afford. Add 30 percent to your base mortgage amount to cover additional expenses you don't pay for as a renter.

You can make a down payment of at least 10, but ideally 20, percent. Remember, if you put down less than 20 percent, the bank requires mortgage insurance, which adds to your cost.

You can withstand a TSA-level financial pat down. Lenders will request a dizzying array of financial documentation—your bank and investment account statements, pay stubs, tax returns—and may keep circling back and asking for more paperwork until the day you close. And in the new world of chastened mortgage lenders, you need a great—not good—FICO score just to get a deal done. According to mortgage software firm Ellie Mae, applicants denied a conventional (non-FHA-backed) mortgage in 2012 had an average score of 733.

Suze Orman's latest book is The Money Class: How to Stand in Your Truth and Create the Future You Deserve (Spiegel & Grau). Ask Suze your money questions.

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