While buying a home is often referred to as the American Dream, if you buy before you are ready, there can be major financial consequences. For one, if you overspend, you can become "house poor," which can lead to you falling short on your regular bills or failing to work toward your long-term financial goals.
It is important to buy a home for the right reasons. You should be sure you are ready and aren’t just buying because it’s you feel like it's what you are "supposed" to do at this time in your life.
Read on for five reasons you should not buy a home, and five reasons why it might be a good next move when trying to decide whether you should rent or buy.
- Buying a home is a major decision and shouldn't happen just because you can qualify for a mortgage or are experiencing external pressure to buy.
- You also shouldn't buy a home if you may move soon, don't have the income to cover regular maintenance, or have debt that needs to be addressed.
- Buy a home when you are emotionally and financially ready, want stability, are ready to build equity, and have a secure income.
5 Reasons You Shouldn’t Buy a Home
1. Pressure from Other People
When you reach a certain age or start a family or get married, you may get pressure to buy a home. Family and friends may have expectations that it is time to buy a home and “settle down.”
It is important that you are ready and stable enough to buy a home.
Until you (or you and your spouse, if you are married) feel ready to commit to buying a home, you should not do so, no matter what your friends or family think.
2. You Plan to Move
If you know that your job will transfer you, or you plan to move due to school graduation or another life event, you may be better off renting a home than buying a new house each time you move.
The rule of thumb is to buy a home if you plan on being in the area for at least five years. Owning a home also comes with challenges. For example, if you lose your job, it can be tough to pay your mortgage or move for a new job.
3. You Qualify for a Mortgage
Just because you qualify for a mortgage, that doesn’t mean you are ready to own a home. It is a good idea to address any spending issues or debt before you buy a home. It's also a great idea to set up a budget before you buy a home, so you know how much you can afford.
It’s wise to save up a down payment so you get the best possible mortgage. Even if you can qualify for a mortgage, that does not mean that you are really ready to buy.
If you are carrying large amounts of debt, you should not buy a home. Large amounts of debt can prevent you from paying your mortgage, which will severely damage your credit and financial health.
You also should try to keep your debt-to-income ratio as low as possible, so if you already have a large amount of debt, taking on even more debt in the form of a mortgage may not be wise.
5. Home Repairs and Fixer-Uppers
Another reason to put off buying a home is to save money on the inevitable costs of home maintenance.
If buying a home is stretching your budget to begin with, chances are that you will not be able to cover home repairs and annual maintenance costs. If you travel a lot, it may be difficult to care for the yard throughout the year, and paying someone to do it for you can be a large additional cost that you didn’t plan for.
5 Reasons You Should Buy a Home
1. You Feel Ready
Purchasing a home is a big step. It’s not a purely financial decision, it’s also an emotional one. So it makes sense to be nervous about making such a large purchase, plus taking on the financial responsibility and the cost of upkeep.
However, if you are ready both financially and emotionally, you should take the step to buy a home. A home not only can provide security and a sense of accomplishment, it can also set you up for financial success.
2. Building Equity
One of the best things about owning a home is building equity. Instead of throwing money away on rent each month, you are actually putting it toward your home. In case you wish to sell your home, you'd then able to recoup some of this money to put toward your next one or another big purchase.
Keep in mind that the housing market can be unpredictable, so there is no guarantee that your house will greatly increase in value, though real estate is usually an appreciating asset.
If you are lucky enough to pay off your home, you can sell it and collect a large sum of money. You can take that money and put it toward retirement or use the equity to help you move to a nicer home.
3. You Are Secure in Your Job
If you are fairly secure and certain that you will stay in your current job, it is a good idea to buy a home. Having a steady income will help you stick to your budget, pay your mortgage, and build equity. It will also prevent you from wasting money on rent.
4. Tax Break on Mortgage Interest
During the first few years of paying your mortgage, the majority of your payment will go to paying the interest. You can deduct a percentage of your interest from your taxes, which can help you reduce the overall amount that you pay in taxes each year. It is an additional perk to owning your own home.
Everyone gets to the point where they want stability in their lives. Owning your own home gives you a set neighborhood, schools, and community that you can call your own.