5 Times in Your Life When You Shouldn’t Buy a Home
Buying a home is a major life milestone, but it’s also a huge commitment. According to the National Association of Realtors, homeownership is one of the best ways to build financial security. However, there may be times in your life when you just aren’t ready to buy a home.
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For those of you who are wondering whether to purchase a home, here are several times in your life when it may be better to wait.
You’re in Debt
If you have a substantial amount of debt, especially high-interest debt, consider paying it down before taking on a mortgage. Debt not only increases your debt-to-income ratio and impacts your credit score but also limits the mortgage payment you can comfortably afford.
Outstanding debt may affect your loan amount, the interest rate and the loan terms that lenders are willing to offer when you buy a home.
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You Recently Made a Big Purchase
A big purchase, such as buying a car, can impact your ability to purchase a home in the near future. Taking out a loan can increase your debt-to-income ratio, affect your credit score and reduce the amount of cash you have set aside for a down payment or closing costs.
If the car loan causes your debt-to-income ratio to go above 43% or drops your credit score below 620, you might not even qualify for certain types of home loans.
You Can Barely Afford Housing Costs
According to The Motley Fool, you should avoid purchasing a home if your housing costs will exceed 25% to 30% of your income. If they do, you could struggle to make monthly mortgage payments, which puts you at risk of foreclosure.
A foreclosure remains on your credit report for seven years, and based on research from FICO, it can cause your credit score to drop by 100 points or more.
You Plan To Move Soon
Planning to move soon? Don’t bother buying a home.
When you buy a house, you pay closing costs of 2% to 5% of the loan’s value. You also have to do this when you sell a home.
For example, if you bought a home for $400,000 and sold it after a year for $412,000, you would lose roughly $37,080 on its sale after accounting for closing costs and real estate commissions, according to The Motley Fool.
Your Income Isn’t Stable
If you don’t have stable income or you’re in danger of losing your job, it may not be the best time to take out a mortgage.
A sudden drop in income or a job loss can make it difficult or impossible to make your mortgage payments. This could put you at risk of losing your home and make it more difficult to apply for a home loan in the future.
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This article originally appeared on GOBankingRates.com: 5 Times in Your Life When You Shouldn’t Buy a Home
