Why is it that so many people buy homes and then get foreclosed on them just a few months later? Nobody buys a house with the intentions of losing it back to the bank just a few months later, but it happens a lot more often than you would think. The reality is that many people who purchase homes do so for emotional reasons and are willfully ignorant of their actual financial situation. People will buy a home because they have a new child and the need extra space or because their old apartment or home is falling apart. If you’re thinking about purchasing a home, carefully consider whether or not you can actually afford it before you purchase it. Here are five signs that you have no business buying a house.
You Don’t Have a Down Payment – When purchasing a home, you should be able to put some amount of cash toward the purchase right away. This will give you a substantially better interest rate and if you make at least a 20% down payment, you will be able avoid having to pay private mortgage insurance which will easily save you $100 each month. Don’t buy a home unless you can afford at least a 10% down payment.
You Have a Tight Budget As It Is – You might be able to afford a mortgage payment, but just barely. If this is the case, you should probably wait to buy a home. If the slightest emergency happens, you’ll find yourself behind on your house payment and facing foreclosure. Give yourself plenty of wiggle room and have a nice emergency fund built up as well to take care of any hiccups that come along the way.
You Can’t Get a Decent Loan – If the only mortgage that you can get is an interest only, adjustable rate, or other sub-prime loan, you should wait and work to improve your credit until you are bankable for a traditional mortgage. You might also check into seeing whether or not you can be manually underwritten for a mortgage to get a traditional mortgage if you do not qualify for a loan based on your credit score.
You Don’t Have a Real Need – If you’re a single person and don’t have a lot of stuff, you probably don’t have a lot of need for a home right now. It’s sometimes a lot for one person to handle when you consider the utility bills, the cable bill, the mortgage, the up-keep and regular maintenance. If you don’t have an itching desire to purchase a home, it might be a better option just to live in a nice apartment.
You’re Moving in Less Than Five Years – If you plan on moving anytime in the next few years, you probably shouldn’t be buying a home. When you consider all of the closing costs and fees associated with purchasing a home up front, it probably just makes sense to rent a home for the next few years instead of buying one and then trying to sell it.
Purchasing a home can be a great blessing if you purchase it at a time when you can actually afford it and have a legitimate need for a home, but it can also be a great curse if you buy one when you don’t realistically have the money to pay for it!