4 Reasons Not to Buy a House
Home ownership represents the American Dream! To many people, it symbolizes having control, success, and excellence. However, there are several reasons why you should hold off on buying:
Buying is more expensive than renting.
In the college town that I rented a house in, my rent was $650 for a three-bedroom house. Yes, I probably could have bought a house and had the mortgage payment be far less, but there are most costs to home ownership than just the principal and interest. There are taxes, insurance, maintenance costs (including buying a lawn mower and tools), as well as all of the stuff you will “need” to fill up the house.
Home ownership is no easy adventure.
When we went on to buy our first home, there were so many expenses that we never would have thought about:
- Private Mortgage Insurance
- Homeowner’s Association Dues
- Lawn mowing/maintenance fees
- Property taxes (that could go up unexpectedly)
- Insurance fluctuates regularly
- Maintenance costs – new appliances, flooring, plumbing, etc.
- Furnace & Air Conditioner
- Internet costs
- Alarm/Security Systems
- Pest Control
- Random Emergencies (flooded basements, furnace going out, leaking roof)
Not only are most people unprepared for the big expenses (think: roof, furnace, air conditioner, etc), they are completely blindsided by the number of small repairs that add up to big costs – that then have to come out of their emergency fund or budget.
If you don’t have very little debt and a solid foundation of money you’ve saved for a home, don’t even consider buying.
You need to move in the near future.
If you (or your spouse) are in the military, college, or another profession in which you move around a lot, buying a house may not be for you. Most experts recommend owning a house for at least 5 years before selling in order for it to be worthwhile.
And honestly, so much can happen in 5 years.
You could meet the love of your life, want to get married and start a family. Or, your dream job could come calling from across the country.
A parent or loved one could get sick hundreds of miles away.
Or, it may be as simple as you get sick of the neighborhood or the general area.
There are so many reasons why you may want to move in 5 years that if you’re not 100% sure that you want to stay that long, renting would be better for your bottom line, and your freedom.
Your credit needs work.
If your credit score is below excellent (720), then chances are you will have a higher interest rate from the bank, which means you will pay more interest on the loan.
Worst case scenario is you are denied the mortgage!
You do have the option to pay the loan off early, but let’s face it, most people do not have the discipline to do this!
It is a good idea to check your credit for free at least once per year, just so you are aware of what is happening with it. In this day and age, your information has probably already been stolen, it is just a matter of time to see if it will actually be used fraudulently.
By checking your credit, you can easily see if you’re in a good position – at least as far as what the bank will look at.
Think about this example:
Person A has a credit score of 760
Person B has a credit score of 615
Person A will qualify for Prime Interest Rates, which are running about 3.5% right now. On the life of a 30-year $250,000 loan, Person A will pay $154,140 in interest.
Person B will not qualify for Prime Interest Rates, and instead will be stuck with the Sub-Prime Interest Rate of 5.25%. Over the life of that same 30-year, $250,000 loan, Person B will pay $246,983 in interest alone.
As you may have guessed, Person A has “Good Credit” & Person B has “Bad Credit” – according to what the mortgage bank will look at.
The difference between “good” and “bad” credit in this case was $92,843 – is that worth buying before you have good credit?
You cannot put at least 20% down.
When you put less than 20% down on a house, you are charged Private Mortgage Insurance (PMI), which can add up to hundreds of dollars in premiums each month.
More money = bad!
PMI can run into the hundreds of dollars each month, adding financial pressures to your life, and draining your bank account. This is exactly what you don’t want when you already have all those surprise expenses piling on during what is supposed to be an exciting time in your life.
Even though house prices have dropped and interest rates are at an all-time low, all of these are reasons to raise a red flag before you decide to buy a home. A home is more than just a mortgage payment – be it positive or negative and is not something to be taken lightly.
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