7 Signs You're Not Ready to Buy a Home
House hunting can be exciting, but don't let that excitement sweep you up into making a decision you'll end up regretting -- especially if you're a first-time homebuyer and might not know what lies ahead. Before you commit to one of the largest purchases in your life, you'd better be sure you're ready for it. Here are 7 big warning signs that you might not be ready to buy a home after all.
1. Your Job Isn't Secure
When you purchase a home, you're usually locking yourself into a 15-year or 30-year mortgage. You need to make sure you'll have a steady income for the foreseeable future in order to keep up with your payments. (Even if you sell the house after, let's say, 10 years, you'll need stable income for a decade into the future.)
If you're currently working odd jobs or the company you work for is showing signs there may be cutbacks soon, you're better off waiting until you've found a position that offers a bit more security. If you're self-employed or rely heavily on bonuses or commissions, wait until you've been in that position for a few years and have a predictable pattern of income and/or have developed a steady client base.
2. You Don't Know How Long You'll Stay in the Area
Buying a home is making a commitment to live in one area for many years to come. If you have any suspicions you may want to change scenery in the near future, bear in mind that it's not nearly as easy to sell a house as it is to let the lease on your rental expire.
Commissions, closing costs and other fees consume about a six percent bite on the sale of the house -- meaning the house will need to rise in value by six percent (plus inflation) between the time you buy and the time you sell in order for you to "break even" on the property.
Sure, you won't be "throwing money away" on rent in the meantime -- but you will "throw money away" on loan origination fees, interest charges, property taxes, maintenance, appraisals, inspections and a whole host of other expenses. If you'll only be in the house for a year or two, renting may make more financial sense.
3. You're in a Ton of Debt
First of all, being in too much debt can make it hard to qualify for a mortgage. Most lenders will decline your application if debt takes up too large a percentage of your monthly income.
But more important, being in significant debt means your financial boat is in rough waters. Before you make any large purchase like a home, you should work to improve your credit and clear your debt so it doesn't weigh you down for years to come.
4. You Haven't Budgeted for Additional Expenses
In addition to your mortgage, buying a home also means paying for closing costs, a home inspection, moving expenses, renovations and repairs. Do you have enough to cover all of that, or will your mortgage just about tap you out? (Use our mortgage calculator to figure out what your payment would be.)
Don't fall into the trap of thinking your mortgage will be your only expense. While you were a renter, your rent may have been your only home-related expense, but as a homeowner, you need to pay the plumber, electrician, handyman, roofer, HVAC company and more. If the home is located in an HOA-governed area, you'll also need to pay associated fees. Make sure you have enough wiggle room in your budget for these bills.
5. You're Not Ready for the Work That Comes with Homeownership
When you own your own home, no one will come fix your leaky faucet for free or plow your driveway when it snows. You're responsible for all maintenance and upkeep, so you'd better be ready to put in some DIY time, or pay someone else to do it for you.
6. You Don't Have Enough for a Down Payment
You should have at least a 20% down payment ready in order to avoid paying private mortgage insurance (PMI). If you don't have enough, wait until you've saved up more money before you consider looking at houses.
The only exception is if you're in an environment in which home prices are skyrocketing (like 2010), when the cost of PMI was negated by the climbing home values. But these days, with values stabilizing and returning to normal growth levels (roughly the level of inflation), you're better off waiting until you've saved 20 percent.
7. You Feel Pressured to Buy a House
You shouldn't feel pressured into buying a house just because everyone says you should. You're not "pouring money down the drain" by renting if renting is the best option for you right now.
Yes, homeownership is considered a rite of passage. But whether you're 21 or 41, the only life decisions you should be making are the ones that make rational and financial sense for you. Don't feel like you have to buy a home just because "everyone else is doing it."
Paula Pant quit her office job in 2008, traveled to 32 countries and is a successful real estate investor. Her blog Afford Anything is the groundswell of a rebellion against tired old financial advice that says you should skip lattes and chain yourself to a desk for 40 years. Afford Anything helps you crush limits, create riches and maximize life.