Why You Shouldn't Buy a House

Couple looking out kitchen window
••• Thomas Barwick/Iconica/Getty Images

Suitability for homeownership depends on many factors. How's your financial situation? Are you ready to settle down? Some red flags should prompt you to ask yourself if you really want to buy a buy a house right now. It might still make sense if just one of these situations applies, but more than one should definitely give you pause and some carry more weight than others.

You Have No Down Payment

You'll have to make a down payment to finance a home purchase unless you qualify for a VA loan or one of a few first-time homebuyer programs. It can range from just 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 buyers who can put at least 20% down.

You Have Poor Credit

Bad credit can disqualify you from obtaining any mortgage. Those with credit scores below 620 might be able to find hard-money sources that will lend, but the interest rates and fees will most likely be through the roof. And a higher interest rate means a higher mortgage payment.

FHA loans are more forgiving in this respect as well, however. A score of as low as 580 might be accepted for this type of loan. In fact, Debt.org indicates that almost 20% of all homebuyers have a credit score of less than 600. So having bad credit might not eliminate you entirely, but it can make the road to a mortgage a good bit rockier.

You might consider waiting if you have borderline credit, taking some time to improve your FICO score.

You Have a High Debt Ratio

Lenders change the rules all the time when it comes to debt ratios—the percentage arrived at when you divide your monthly debt payments by your gross income each month. The magic number in most cases is 43%.

You probably can't afford to add a mortgage payment to your monthly debt if your other bills eat up 50% of your gross income every month. Lender guidelines have changed since the mortgage meltdown of 2007, so your debt ratio will have to be pretty low for you to get through underwriting.

Consider paying down or paying off your credit cards before buying a home.

You Have Little or No Job Security

Now isn't a good time to buy a home if you have reason to believe that your job might be in jeopardy. Many homeowners who go into foreclosure end up in that position because they have lost their jobs.

Unemployed individuals often place priority 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.

Renting Is 50% Cheaper

Consider whether it makes more sense to rent rather than buy if your main objective is simply to put a roof over your head. It can be a bit of a stretch to meet the financial obligations of homeownership when rents in some real estate markets are 50% lower than average mortgage payments.

You might be better off renting and paying less for that roof if home prices are so high that few buyers can afford to buy their first home.

This isn't always an easy calculation to make, however. Home mortgage interest and property taxes are tax deductible, and the interest portion of your payments can be somewhat significant in the early years of a loan's term.

This tax deduction is capped at $10,000 by the Tax Cuts and Jobs Act as of 2020, but that's still $10,000 in income that you wouldn't have to pay taxes on and that should be factored in.

You Tend to Move Every Year

Buying a home is generally a long-term commitment. You might find that it's impossible to sell your new home in a relatively short period of time without absorbing a big loss if you're the type who loves the excitement of new digs and you want to frequently change your environment.

Many people buy a home to build equity, and that's very difficult to do if you're buying and selling at the drop of a hat, especially in areas where appreciation is little or none.

You're in an Unstable Relationship

Single people buy homes, especially single women, but a homebuying purchase is often made with a partner or spouse. What will you do if you're relying on your partner's income and support to make mortgage payments and that person leaves your life?

You could be facing a short sale or, at the very least, a loan modification, both of which can affect your credit.

You're in a 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.

The only way it makes sense to purchase in a falling market is if you buy below the comparable sales. But your predictions could be wrong if you try to time the real estate market and buy at the bottom, and there's no guarantee that your property will appreciate even under these conditions, although it most likely will over time.

You're Constantly Traveling

Some people say condos are a good choice for people who are always on the go, either due to their work or because they just like to travel. Condos are often referred to as a "lock-and-go" lifestyle. Owners feel that others living in the condo complex will watch over their homes in their absence and nothing bad will happen.

But what about that homeowner association fee that's due and payable every month for services that you're only occasionally using? That could be a huge waste of money if you're rarely at home.

Everybody Else Is Doing It

Buyers often end up in multiple offer situations in seller's markets because inventory is tight and demand is high. You'll have little negotiating power and will often 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.

Article Sources

  1. Consumer Financial Protection Bureau. "How to Decide How Much to Spend on Your Down Payment." Accessed March 27, 2020.

  2. HUD.gov. "Let FHA Loans Help You." Accessed March 27, 2020.

  3. Debt.org. "Getting a Mortgage With Poor Credit." Accessed March 27, 2020.

  4. Consumer Financial Protection Bureau. "What Is a Debt-to-Income Ratio? Why Is the 43% Debt-to-Income Ratio Important?" Accessed March 27, 2020.

  5. HUD.gov. "Common Questions From First-Time Homebuyers." Accessed March 27, 2020.

  6. VA Home Loan Centers. "23 Reasons To Buy and Not To Buy A Home In A Recession." Accessed March 27, 2020.