For many, buying a house is a major life goal. But given that this is often the biggest financial decision a person can make, it’s also one of the most difficult goals to achieve.
It’s worth keeping that in mind if you’re thinking of buying a house right now. You see, a lot of people jumping into the real estate market actually shouldn’t be there yet.
Believe it or not, buying a house isn’t always a responsible financial decision. There are many cases where it may even be disastrous, tying up your finances for decades!
If you want to be sure you’re not headed for disaster with your own house purchase, we can help. Today, we’ll go over 5 of the main signs that you’re not ready to buy a house.
#1 You’ll Have Other Big Expenses in the Next 5 Years
Are you planning to get married next year? Or maybe you’re thinking of having a child in the next 2 years?
These major life events are also major expenses. If you have to deal with the costs they bring, you might not be able to keep paying off your monthly mortgage.
Buying a house is a decision that will typically lock you into making payments for many years. In fact, you may well be looking at mortgage payments for the next 3 decades!
Imagine paying those along with all of the expenses you’re planning to add to your plate in the near future.
Can you continue to pay mortgage while paying for a lavish wedding? Or children’s medical and tuition fees?
If not, it’s time to rethink your plans for homeownership. Too many financial priorities will spread you thin.
#2 You Have Big Debts You’re Still Paying Down
This is related to the previous sign, as it also has to do with financial obligations that extend into your future expense list.
The rule of thumb is to avoid big purchases if you have outstanding debt. Debts can accrue interest, after all, so they turn into bigger expenses the longer you have them.
This doesn’t mean that any debt at all is a warning sign. If you only have a small amount of credit card debt or even a few student loan payments left, for example, that’s fine.
If your debt load is around 40% of your total income, though, that’s a different story. That suggests a debt so large that paying it off translates to another long-term major expense.
As mentioned earlier, that’s a problem if you’re going to be saddled with mortgage payments for several years. You may run the risk of being unable to meet payments for one of your obligations.
#3 You Don’t Have a Good Credit Score
There are a lot of reasons a poor credit score means you shouldn’t buy a house. The most obvious is that a poor credit score already makes you an unlikely candidate for a mortgage.
This also means you’ll likely have to deal with another problem: horrific interest rates on home loans.
After all, lenders consider people with poor credit scores to be at higher risk of delinquency. That means they’ll charge you higher interest to make up for the risk they’re taking on by lending to you.
In any case, it’s why you should beg off applying for home loans if your credit score is poor. Instead, work on bringing up your score so you can get decent rates when you finally do take out a home loan.
#4 Your Down Payment Will Empty Your Savings
Your down payment for a home shouldn’t empty or near-empty your savings. In all likelihood, you’ll need those savings for something else later!
There are so many costs that can crop up -- some out of nowhere. While you may be able to foresee costs like property taxes, for instance, you may not predict sudden medical bills or costly plumbing repairs for burst pipes.
If a huge emergency expense appears in the future, you’ll need your savings to deal with it. Otherwise, you may end up taking on more debt just to weather the situation.
#5 You’re Unsure You’ll Stick Around
People have to move for all sorts of reasons. Most often, though, it’s because of their career.
If you’re uncertain of where your career will lead you in the next 5 years, it’s not a great idea to buy a house. What if you end up having to move far away because of a great job offer? You’ll have to sell the house too.
Now, that’s not always a problem, assuming a decent real estate market. It becomes a problem if you sell too early, though.
You see, if you sell too early, the property wouldn’t have appreciated enough to recoup your costs in buying it just yet.
In short, you may end up selling the house at a loss. Sell it within just 2 years of buying it, for instance, and you probably won’t even get enough to cover your closing costs too.
So, ask yourself if your professional (and personal) situation is steady enough that you don’t foresee moving in 5 years. If it’s not, you should probably wait until you’re in a more stable situation.
So, How Can You Get Ready to Buy a House?
If any of the signs above applied to you, you’re probably a little frustrated right now. You may be wondering when (or even if!) you’ll ever be ready to buy a house.
The trick to it is actually to work towards that readiness. In other words, treat buying a house as something you have to prepare for with care, especially by managing your finances carefully.
Do it right, and you’ll eventually find yourself in a good position to make such a big purchase. Even then, though, you should still figure out if it’s actually a purchase that makes sense for you.
If you need help answering that or working towards homeownership, you may want to consult with a financial advisor. We can connect you with specialists at Financial Fortress.
With their guidance, you’ll learn how to achieve the financial independence and stability necessary for homeownership. They’ll give you practical and proven lessons on wealth management and financial planning.
To get started on your journey to a sounder financial future, get in touch with us today.
Written in collaboration with our financial advisory partners at Virtus Associates.