Thinking about buying a house? When to just
You shouldn't buy a house.
Believe it or not, that's good advice for some
people, no matter what the mortgage lender says. Depending on their
financial status and aims in life, some consumers will likely be
better off renting for a while and buying later, or maybe not buying
at all, experts say.
"If you buy a house and are locked into a payment,
you're kind of stuck there," says Nancy Langdon Jones, a certified
financial planner in Upland, Calif. Get the wrong person into the
wrong place, she adds, and "it's really easy to lose your house
because that's the first thing to go."
For some buyers, if it feels like it's time
to enter into "the biggest financial commitment you'll ever make,"
it is. But there's a reason experts urge people to be cautious rather
than hasty when buying a home. Problems with job security, personal
goals, financial resources and credit history can all wreak havoc
on a transaction, and it's often too late to fix them after the
closing. So rather than jump right in, consumers should see if their
situations match one or more of the ones outlined below. If they
do, those consumers might be better off putting down that pen for
"People get into financial difficulties and
it can happen very quickly," says David Morganstern, a certified
financial planner who is co-president of Capital Management Consulting
in Portland, Ore. "What we try to do is to try to look more broadly
than 'What is the answer to the one question on the table?'
"If they say, 'I just need advice on buying
a house'," he adds, "we always counsel them to think more broadly."
shaky? Don't buy
One of the first things to evaluate is job security. Workers
on shaky ground with their employers or those who don't think they'll
be able to find jobs nearby if the plant goes belly up might want
to wait on getting mortgages, for example. The same goes for people
who plan on jumping ship soon.
"If they have been contemplating shifting gears
or contemplating moving to another company or just having their
resume out or headhunters calling, that would obviously not be a
good time to incur debt and the hassle of going through and buying
a home," Morganstern says.
The monthly payment isn't the only obstacle
to this kind of customer. There are also the required closing costs
and other home-buying fees, as well as the commission that most
owners end up paying to real estate agents when they sell their
homes. Those charges can actually leave someone in the hole if the
property is sold after only a short amount of time.
"You're talking a huge loss should there be
a drop in property values and you have to move for some reason,"
Jones says. "If you need to turn your house over quickly and you
just put out a huge outlay for escrow and title and points and who
knows what else, that's just a slam-dunk for a huge loss right off
the bat that will be real difficult to recoup."
investing? Don't buy
Trouble also can pop up for people who enter the home-buying
process with unreasonable expectations.
Those who think a house will earn them a lot
of money as a short-term investment, for instance, might be better
off renting, if they can do so cheaply, and investing their cash
in the stock market. With home-price appreciation averaging about
3 percent to 7 percent today, they're probably not going to be able
to match the historical after-tax return that stocks deliver --
Property-value gains are by no means guaranteed,
Jones recalls the plight of home buyers in Rancho
Cucamonga, Calif., a few years back. They figured new development
and shopping centers filling to capacity with workers, tenants and
consumers alike would support their area's economy. But the subsequent
opening of the huge Ontario Mills Mall nearby changed the landscape
completely. Stores relocated and took jobs with them. "For Sale"
signs sprouted from area lawns like weeds. Asking prices fell.
"These were new houses. When people moved in,
they put up additional money for landscaping and decorations and
putting in pools, et cetera," she says. "But there was a lot of
money lost -- and being lost right now."
too big for budget? Don't buy
Not everybody treats a home as an investment, however. To some,
it's the only thing they've wanted in life. Unfortunately, that
mindset can lead people to throw every penny at the down payment
and forget about the cost of fixing leaky pipes, painting the baby's
nursery and painting it again when it turns out the ultrasound was
wrong. Buyers in this situation are taking big risks because they
haven't built up any reserves.
"The problem really becomes, the way I see it,
the maintenance of the home," says Bob Crew, a certified financial
planner at Critical Mass LLC in Wichita, Kan. "Three or four years
later, the house needs painting and they don't have the extra $1,000
or $1,200. They can't keep the home in the kind of repair and upkeep
they want because their monthly budget is strapped."
credit? Don't buy
People with tainted credit histories might also want to hold
off on buying. Even though many will be able to get loans in today's
easy-credit environment, doing so can sometimes just make things
Rates and terms on subprime mortgages run much
higher than they do on conventional loans. That makes it tougher
to come up with the monthly payment. Some lenders in the subprime
sector of the mortgage industry don't bother to report payment loan
performance to the credit bureaus either, according to government
officials. So, somebody who diligently pays the bills may not be
rewarded with the chance to refinance at a lower rate elsewhere
down the road.
"If you're overextended as a client and you
want to buy a house on top of that, or a more expensive house, that's
not a prudent set of decisions," Morganstern says.
wait will be worth it
Though this kind of unconventional wisdom may not be music to
some buyers' ears, it can help them out. Experts say they'll find
ownership is truly better for those who wait because doing so will
improve their financial lives.
"There are going to be other houses coming along,"