3 Signs That You’re Not Ready to Buy a House
Buying a house is routinely considered an essential part of the American Dream. Home ownership provides an opportunity to build equity, keep housing payments somewhat fixed, and raise a family in a place you can decorate as you wish. While Americans believe real estate is the best long-term investment, it certainly isn’t for everyone. Let’s take a look at three signs you’re not ready to buy a house.
1. Looking for newfound happiness
If you think purchasing a house is the key to finding happiness, you will be sorely disappointed. You have more freedom to customize your surroundings, and a yard can be the setting for enjoyable events, but a house can also be a source of frustration. Spending time on maintenance issues and yard work can be taxing, while homeowner associations can restrict how much freedom you truly have on the home’s exterior. Before you know it, you may be regretting your purchase decision.
Buyer’s remorse is alive and well in the real estate market, especially if you find yourself running out of room after filling every corner of the house with furniture and trinkets. According to a recent survey from HSH.com, 80% of homebuyers are remorseful about their new home, while only 20% say they have no regrets. Among the most common regrets, 15.5% say their house is too small, followed by lack of storage options at 9.2%. Meanwhile, more than 8.4% are disappointed with their neighbors, and 7.2% are not satisfied with the local school system.
Making matters worse, home-related regrets are not easily forgotten. Nearly 36% of survey respondents who express regrets say they think about their disappointment occasionally, and more than 37% think about their regret frequently. Almost 22% think about it every day. Interestingly, 66.4% of Americans say they would buy their current home again.
2. Not calculating the numbers
Buying a home is likely the biggest financial transaction of your life. Failing to take time to figure out how much house you can afford is an obvious sign you’re not ready to buy one. A general rule of thumb is not to spend more than 30% of your gross income on a mortgage payment, which includes principal, interest, property taxes, and insurance. Lenders typically allow up to around 36%, but how much a lender is willing to loan you and how much you can comfortably afford are two different things. After all, property taxes and insurance costs rise overtime. If your down payment is less than 20%, mortgage insurance will drain your bank account even more.
In addition to monthly mortgage payments, you may also encounter HOA fees, which can easily run $100 or more each month. Furthermore, maintenance requires money, the extra square footage a house provides usually brings higher utility bills, and remodeling projects add up quickly. In fact, nationwide spending on maintenance and home improvement likely topped $300 billion last year.
You also need to consider the different loan options and how they affect your personal finances over the long-term. Interest rates can be fixed or variable, and duration may vary significantly. For example, a 30-year fixed mortgage on $200,000 at 4% results in a payment of $955 (including only principal and interest). A 15-year mortgage with the same terms results in a monthly payment of $1,480. The lower payment may look like the better deal on the surface, but the 15-year mortgage can save you $77,450 in total interest costs compared to the 30-year mortgage.
3. Can’t seem to settle down
Buying and selling a home is expensive. If you can’t seem to settle down into a job or particular location, renting is likely a better option. You could find your finances upside down if you have to move shortly after buying a home. Realtors charge commissions and administration fees, lenders collect loan origination fees, home appraisers and inspectors cost in the neighborhood of $400 each, and the mere process of completing all the required paperwork is time consuming. Renting is not a matter of throwing your money away, you’re paying for a place to live without these common burdens of homeownership.
General advice recommends not buying a house unless you can picture yourself living there for at least five to 10 years. This allows time to build equity by paying down your mortgage and allowing home prices to rise. However, as the recent housing bubble proved, rising home prices are not a guarantee. The longer you can envision yourself staying in any particular house, the better your odds of not being financially strained when it comes time to sell. Historically, the typical buyer of a single-family home stays for 13 years.
Follow Eric on Twitter @Mr_Eric_WSCS