1. TO RENT OR TO BUY?
Owning a home is regularly described as one of the best ways to build wealth, especially for retirement. However, tying down to a mortgage and home is not a financial investment that makes sense for everyone. Depending on the stage in life you are in and the financial one, it may be wiser to rent. Here are some of the top reasons not to buy a home, from real estate and investment experts across the country.
2. YOU CAN’T PAY IT
It’s important to be honest with yourself about whether you can really buy a home, says Christopher Flis, president of Tennessee-based Resilient Asset Management. “By paying it off, I mean you don’t borrow from your retirement accounts for the down payment, your home occupancy costs don’t exceed 25 percent of your gross income, and you don’t plan on doing a revolving door of upgrades to the home.”
3. YOU WANT FLEXIBILITY
Unless you are buying a home on wheels, you are stuck in one place. “If you’re in the military or have a job that transfers you every two years, buying a home can be more of a burden than a blessing,” says Christian Stewart, a financial adviser with Do Better Financial. “Trying to sell a home quickly usually means you lose or become a long-distance landlord, neither of which is ideal.” When you can commit to a location for three to five years, buying a home makes the most sense.
4. YOU CAN’T BUY A HOUSE IN A GOOD SCHOOL DISTRICT
The local school system should always be considered when buying a home, and areas with large public schools are often more expensive. If you can only afford a home located in a school district that is not suitable, you may have to decide to move later if your family expands. Unfortunately, that can’t be that simple – a bad school district can lower the interest of potential buyers along with the future sale price of the home.
5. YOU ARE NEW IN YOUR WORK
Buying a home when you are just starting a new job can have drawbacks. If the job doesn’t work, you may suddenly find yourself struggling to make your mortgage payment. If you just don’t like the job, you may be stuck in a job that you’re not happy with just to stay afloat.
6. YOU HAVE BAD CREDIT
Certainly, there are banking institutions that will work with buyers who do not have the ideal credit, but they offer so-called subprime mortgages, which have a cost. “Subprime mortgages tend to have higher or adjustable interest rates, which translates into paying more for your home in the long run,” says financial advisor Christian Stewart. If you have debt in collections or lawsuits against you, get up to date before buying a home, as that will help you qualify for better conditions.
7. DEBT-INCOME RATIO.
Add up all your monthly debt payments (credit cards, loans, etc.), divide that number by your monthly income (gross) and multiply the result by 100. The result is what is known as your debt / income ratio, which it is an important factor in any mortgage application. “Even if your credit score is pretty good, over 670, having a high debt-to-income ratio (over 40 percent) will get you back into the subprime category,” Stewart says.
8. DO YOU WANT A LONG AMORTIZATION PERIOD
It is important to consider amortising or spreading your mortgage payments over several years before buying. “With amortisation, you don’t really start tackling the principle within your mortgage for about seven years,” says Shawn Breyer of Breyer Home Buyers. At the same time, salaried workers typically stay with an employer for just over four years, according to the Bureau of Labor Statistics. That means those who move to their next job don’t build equity; they lose money by owning.