Ten Reasons to Not Buy a Home
Whether you're a candidate for homeownership depends on many factors, some of which carry more weight than others. Only you can determine which of those factors is the biggest influence in your life.
Following are red flags that you may want to ponder before plunging into buying a home or making the decision to continue renting. Anyone of them can stand alone as a reason not to buy a home. It might still make sense to buy a home if one of these situations applies, but more than one should definitely raise a caution flag.
No Down Payment
Excluding VA loans and a smattering of first-time home buyer programs, you will need to make a down payment to finance a home purchase. This amount can range from 3.5% of the sales price for an FHA loan to a minimum of 10% for a conventional loan. The best interest rates are offered to those buyers with 20% to put down.
Bad credit can disqualify you from obtaining any mortgage. Those with credit scores below 620 might find hard-money sources that will lend on a home, but the interest rates and fees will be through the roof. A higher interest rate equates to a higher mortgage payment. If you have borderline credit, consider waiting, and make changes in your spending habits to improve your FICO score.
High Debt Ratios
Lenders change the rules all the time for debt ratios. If bills eat up 50% of your gross income every month, you probably cannot afford a mortgage payment on top of those expenses. Because lender guidelines have changed since the mortgage meltdown of 2007, your debt ratios will need to be really low or you will never get through underwriting. Consider paying down or paying off your credit cards before buying a home.
Little Job Security
If you have reason to believe that your job may be in jeopardy, now is not a good time to buy a home. Many homeowners who go into foreclosure end up in that position because they have lost their jobs. Unemployed individuals often place priorities on buying groceries and putting gas in the car over making a mortgage payment, hoping they can make up the mortgage payments later. Instead, they tend to go deeper into debt.
When Renting Is 50% Cheaper
If your main objective is to put a roof over your head, consider whether it's smarter to rent than to buy. In some real estate markets, it can be a bit of a stretch to meet the financial obligations of homeownership while rents in those areas are 50% lower than a mortgage payment. When home prices are so high that few buyers can afford to buy their first home, you may be better off renting and paying less for that roof.
Tend to Move Every Year
Buying a home is generally a long-term commitment. If you love the excitement of new digs, which makes you want to constantly change your environment, you may find that it's impossible to sell your new home in a relatively short period of time without absorbing a big loss. The reason many people buy a home is to build equity, and it's very difficult to build equity if you're buying and selling at the drop of a hat, especially in areas where appreciation is little or none.
Although many single people buy a home, especially single woman home buyers, often a home buying purchase is made with a partner or spouse. If your relationship with that person is unstable, what will you do if you're relying on that person's income and support to make the mortgage payment, and that person vanishes? At that point, you could be facing a short sale or, at the very least, a loan modification, both of which affect credit.
Declining Real Estate Market
People who buy homes in declining markets often watch in horror as their equity disappears when the market continues to fall. Home buying in a falling market means if you put down 20% and the market falls another 5%, you have now lost 25% of your investment. Poof. Gone. Out the window. The only way that it makes sense to buy in a falling market is if you buy below the comparable sales. If you try to time the real estate market and buy at the bottom, your predictions could be wrong.
Let's be serious here. If you travel all the time, why would you want to buy a home? Some people say condos are a good choice for people on the go; it's called a lock-and-go lifestyle. They feel that other owners in the condo complex will watch over their home in their absence and nothing will happen. Well, what about that homeowner association fee that is due and payable every month for services that are used once or twice a month? That could be a huge waste of money.
Everybody Else is Doing It
It's a fact that in seller's markets, buyers often end up in multiple offer situations. That's because in those markets, inventory is tight and demand is high. When you buy a home in a seller's market, you have little negotiating power and often will pay more than list price. You'd be much better off buying a home in a buyer's market when there are fewer buyers competing for larger amounts of inventory. You don't always have to follow the crowd to make a wise financial decision.
At the time of writing, Elizabeth Weintraub, BRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.