5 reasons not to buy a house

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You may not want to buy a house if any of these things apply to you.


Important points

  • Buying a home is a major financial commitment.
  • You should not buy a home unless you are financially ready.
  • There are a few important reasons not to buy a property, including missing a down payment.

Buying a home can often help you improve your financial situation because you can start building equity while paying off your loan. Once purchased, you acquire ownership of a valuable asset over time, and hopefully the value of that asset will increase as property values ​​increase over time.

But while buying is usually a good financial choice that can increase your net worth, this is not the case in all circumstances. If any of these five things apply to you, you probably shouldn’t be buying a property — at least not any time soon.

1. You will be moving soon

If you are planning to move in the next few years, there is little point in buying a house. Enormous transaction costs are incurred when buying and selling. The real estate agent’s commission alone can be as high as 6% when you’re selling, and that doesn’t include all of the other upfront payments you might owe during your buying and selling transaction – such as referral fees, mortgage origination costs, appraisals, inspections, and more.

In most cases, it takes several years for your property to appreciate in value to cover these basic costs involved in buying and selling. So you should only buy if you intend to live in the house for at least a couple of years. If you meet this requirement and stay in your home for at least two years, you can also avoid capital gains taxes on your gains.

2. You have no deposit

Most mortgage lenders want you to put money into the property – at least 3% and ideally closer to 10% to 20%. It is sometimes possible to find a loan without a down payment, but it is very likely that your interest rate will be higher and you will owe more upfront payments.

Aside from the fact that without money, your borrowing options are limited, you are also taking on a really big risk. You owe what your home is worth if you borrow 100% of its value. Because of transaction costs, this would mean that if you needed to sell quickly, you would inevitably have to bring cash with you so that you could pay off your loan in full along with other selling expenses.

If property values ​​drop even slightly if you don’t pay a down payment, you could also be deep in debt more than your house is worth. This could leave you either trapped in the property or face a damaging short sale or foreclosure that will wreak havoc on your finances for years to come.

3. Your credit rating is low

If your credit score is low, you are again confronted with the prospect that few lenders are willing to lend you. And your loan will be significantly more expensive than if you had a better score.

You can find lenders willing to offer loans with a score as low as 500, or even lower in certain circumstances. But you’ll definitely pay an extra price if your score isn’t higher.

In an ideal world, you would wait until your credit score hits around 740 to get the absolute best interest rates and a huge variety of mortgage options to buy. But if that’s not possible, aim for a minimum score of around 620 to 640 so you have more choices with lenders and qualify for rates that are at least fairly reasonable.

4. You don’t have an emergency fund

Having an emergency fund should be a prerequisite for anyone thinking about buying a home. Without one, the chances of foreclosure are far too high, as any income interruption could leave you unable to pay your housing bills. Even if your income stays the same, major or even minor home repairs can help you deal with debt that’s making your life miserable.

You should aim for a fund that will cover three to six months of living expenses if possible, but if you can’t wait that long, make sure you have a few thousand dollars saved before you commit to all of the homeownership-related expenses to bear costs.

5. You can’t afford closing costs

Finally, if you don’t have enough to cover closing costs, you should seriously consider postponing your home purchase until then. Closing costs are upfront payments that are approximately 2% to 5% of the acquisition cost. They have to be paid one way or another. So if you don’t have the cash to cover them, you would likely face a higher mortgage rate or have to borrow more and put them into your loan.

By making sure you have the money to cover closing costs, you avoid getting more expensive on your mortgage. This step, combined with saving a down payment, improving your credit score, and saving for emergencies before you buy, can help you maximize the chances that you’ll be able to afford your home over the long term.

A historic opportunity to potentially save thousands on your mortgage

Interest rates are unlikely to remain at multi-decade lows much longer. That’s why it’s crucial to take action today, whether you’re refinancing and cutting your mortgage payment or ready to pull the trigger on a new home purchase.

The Ascent’s in-house mortgage expert recommends this company find a low interest rate – and in fact he’s used them to refect himself (twice!). Click here to learn more and see your plan. While this doesn’t affect our opinions about products, we do receive compensation from partners whose listings appear here. We are always by your side. Here is The Ascent’s full advertiser disclosure.

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