For many Americans, owning their own home remains a primary goal. And right now you might end up having more purchasing power: Interest rates are low because the The Federal Reserve cuts rates to contain the impact of the coronavirus pandemic.

Last week, the average interest rate on a 30-year mortgage was only 3.3%, well below the average APR of 4.1% recorded a year ago in April 2019, according to Freddie Mac data. With this drop in interest rates, the monthly payment on a $ 320,000 home is now about $ 100 less, or about $ 1,500 per year, according to Redfin real estate loan calculator.

While these rates may make you dream of closing a deal on a new home, how do you know if you can afford to stop renting and buy your own home? Financial expert Suze Orman says she gets this question all the time from her readers. First of all, it’s important to understand that buying a home is about more than having a down payment and being able to pay the monthly bill, even if interest rates are at historic lows, she says.

For many Americans, the expected mortgage payment may not be that different from their current monthly rent. But even if you’ve saved up a down payment, you might not be able to afford all of the monthly expenses associated with owning a home.

When you buy a home, you have to pay property taxes, insurance, and maintenance costs on top of your mortgage payment, Orman says. In addition, if you put less than 20% of the purchase price of the house as a down payment, you will also have to pay private mortgage insurance, or PMI, to offset the risk that your lender takes in granting you a home loan.

These costs add up. Orman estimates that these extra, but necessary, expenses will cost you 45% more than your mortgage, just to keep your home.

Orman’s tip on whether you can buy a house

In order to determine if you can afford to buy, Orman says first-time homebuyers should test their finances. “I want you to play house,” says Orman, who recently released “The Ultimate Guide to Retirement for People 50 and Over. “

Suppose you pay $ 1,000 in rent and your mortgage will cost roughly the same. Over the next six to eight months, take $ 450 a month and put it in a savings account on the first of every month. It is in addition to eight month emergency fund and the 20% down payment that Orman recommends having in place before you even start looking at local real estate listings.

“If in six to eight months you are able to do it on time every month, you can afford this house,” Orman said. Plus, after eight months, you’ll have close to $ 4,000 to spend on your closing costs.

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Keep in mind that setting aside $ 450 per month is probably the low end of what you’ll need. You’d be hard-pressed to spend just $ 1,000 on rent or a monthly mortgage payment in some parts of the country, like New York or California. Nationally, the latest median real estate listing price is around $ 320,000, according to March Housing Trends Report.

This means that if you are looking to buy a home at par with the average cost, your monthly payment will be closer to $ 1,500 per month for your mortgage, interest, taxes and insurance, depending on Redfin’s calculator. It’s based on an interest rate of around 3.3% on a 30-year loan.

To put Orman’s strategy into practice, you need to set aside an additional $ 675 per month. The more expensive your mortgage, the more you will have to pay these additional fees, so the more you will have to practice saving.

“Most of your mortgage payments are going to be a lot more than that,” Orman says. But $ 1,000 is a good way to illustrate how the numbers work. “It works whether it’s a mortgage payment of $ 1,000 per month, mortgage payment of $ 5,000 per month or mortgage payment of $ 10,000 per month, it still applies. “, explains Orman.

If it’s hard for you to set aside that extra 45% of your estimated mortgage payment each month, you probably can’t afford to buy a home right now. Or as Orman would say, “You are so denied. “

Suze Orman’s latest book, “The Ultimate Retirement Guide for 50+” was released at the end of February 2020.