A Suze Orman exclusive

Even if you take the time to calculate the true monthly cost of owning your first home, I would suggest that you put those numbers to a test. For you see, looking at the figures on paper and actually having to write those figures on a check are two different issues. So I want you to commit to the following exercise for six months before you actually start even looking for a home:

Step 1:
Figure out how much buying a home in your estimated price range will really cost you monthly, including all the expenses I pointed out above.

Step 2:
Subtract your current monthly rent from the total figure you came up with in Step 1. For example, if your current rent is $1000 and your monthly homeownership cost is $1,450, that is a difference of $450 per month.

Step 3:
Set up a new bank account. On the first day of each month - not the second, not the third, but the first day of each month - you are to deposit whatever the difference is between your current rent and what your projected homeownership costs would be; in our example, you would deposit $450 into the account.

Step 4:
You are to do this every month for six months. If you are late in your payments, or if you feel stressed out trying to make the payments, you should take this as a sign that you may not be financially ready to become a homeowner. Then take a little of this money and go out and celebrate. You deserve congratulations for going through this process and learning you aren't yet ready to buy. You just avoided making a huge financial mistake; and in my book avoiding mistakes is an important part of life.

If, on the other hand, it was easy for you to make the extra $450 monthly payment, that's a financial sign you can probably afford to buy the house you want. That's the good news. The great news is you now have an extra $2,700 you saved during this six-month test that will come in handy to help pay for your closing costs on the mortgage, or the new furniture I know you are going to want, or - better yet - to increase the size of the down payment.

You Better Know the Score
Come on, you didn't actually think we could get through a column without talking about your FICO score, did you?

Before you even think about looking at homes, I want you to make sure your credit report is spanking clean and your FICO score is as high as possible. Remember, the higher your score, the lower the interest rate you will be offered on the loan. If you get your score to 720 or better, you're in the "top group" and will be in line for a great rate of 6 percent or so on a 30-year fixed rate loan. But if your score is 100 points lower, your rate is going to be closer to 7.8 percent. On a $150,000 mortgage that translates into an extra $180 or so you're going to need to fork over each month. And over the life of that 30-year loan you're looking at paying tens of thousands of dollars more in total interest costs. It clearly pays to get your credit score in order. So while you are debating whether you should keep renting or take the plunge and buy, why not use that time to make sure your FICO score is the highest it can be?