Buying a home can be a great way to build personal wealth over time, but it isn’t the right decision for everyone.
Becoming a homeowner is a major investment that requires careful planning. Consumers should take a hard look at their finances to make sure they can afford to take on the financial responsibility.
In addition to coming up with a down payment, you must plan to make monthly mortgage payments, pay for homeowners insurance, and handle other costs like property taxes, homeowners association dues, and repairs and maintenance of the home and grounds.
Finances aside, buying a home is a lifestyle choice that requires buyers to put down roots. People who enjoy the flexibility of being able to move whenever they choose aren’t good candidates for homeownership.
What follows are some signs that you’re not ready to become a homeowner:
1. You don’t know if you’ll keep your home for 5 or more years
If you decide to sell your home soon after buying it, you could lose part or all of your investment. Although property values typically increase over time, they can rise and fall with the health of the local economy.
If you decide you must sell during a housing market downturn, you could lose money. Mark Goldman, a loan officer based in San Diego, generally recommends that buyers plan on keeping their homes five years or more to increase their chances of getting a good return on their investments.
2. You just can’t afford it
Not everyone who wants to become a homeowner is financially prepared to do so. Consumers frequently don’t realize that homeownership is beyond their means until their real estate agent or lender breaks the bad news, says Goldman.
“A lot of times, people wake up with the urge to purchase a home,” he adds. “They often are unrealistic. One of my first questions is, ‘What is a comfortable monthly payment for you?’”
If you buy a home and can’t keep up your mortgage payments, you may be forced to sell it. If you can’t find a buyer, eventually your loan will go into default. In addition to losing the home, you will seriously damage your credit rating, making it difficult to obtain loans in the future.
3. You can’t qualify for favorable lending terms
Mortgage companies charge interest based on the risk you represent as a borrower. If you don’t have a strong credit history when you apply for a home loan, lenders won’t offer you the most favorable terms. In that case, you may be better off taking some time to build up your credit rating before you make a purchase.
Getting your finances together before you buy a home “will make the difference between a great homeownership experience or a stressful one,” says Jonathan Faccone, founder of Halo Homebuyers, which buys homes in New Jersey and eastern Pennsylvania.
Your credit score is affected by such things as how much you owe, how long you’ve carried the debt, and whether you pay your bills on time. The three major credit bureaus are Equifax, Experian, and TransUnion. They are required law to provide you with a free credit report each year.
This article explains the details: “How to Get Your Free Credit Report in 6 Easy Steps.”
4. Owning a home doesn’t suit your lifestyle
Not everyone dreams of becoming a homeowner. Maintaining a home is an ongoing process, especially if you have an older dwelling. Hinges rust, faucets leak, and lawns need to be reseeded. Perhaps you’re not ready to give up your leisure time to do home improvement projects.
As a homeowner, you alone are responsible for the upkeep of your dwelling, says Eric Sztanyo, owner of We Buy NKY Houses, which buys homes in northern Kentucky and Cincinnati. “There is no landlord to call to fix the leaky roof,” he adds.
If you’re not willing to invest the time and effort to maintain your home, you may be happier as a renter.
5. You enjoy rental perks
When you rent an apartment rather than buying a home, you may gain access to a variety of recreational facilities. Many rental complexes offer residents the use of such amenities as fitness centers, tennis courts, hot tubs and swimming pools.
Equipping a single-family home with such things can be prohibitively expensive. If recreational amenities are important to you, you may prefer renting.
6. You’re uncertain about the health of the housing market
Not everyone is comfortable making a large investment in a home, Goldman says.
Some worry that home prices will drop, leaving them unable to sell their dwelling for enough money to pay off the mortgage. That could force them to remain in the home longer than they anticipated while they wait for real estate prices to improve.
Renting doesn’t build home equity, but it enables you to avoid the risk of owning a home that could lose value.
For more, check out “10 Reasons Renting Is Better Than Buying a Home.”
7. You want the freedom to downsize
Many renters and homeowners eventually decide to downsize. As they grow older, they find it burdensome to clean and maintain a large dwelling.
Before finding a new place to live, homeowners typically must sell their dwelling. That means putting the home on the real estate market, showing it to potential buyers, and negotiating a sale price.
For renters, the process is much easier. Depending on the rental agreement, they may be able to move after simply giving the landlord a 30-day notice.
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