Thinking about buying a house? When to say no
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,
"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 a while.
get into financial difficulties and it can happen very quickly," says David Morganstern,
a certified financial planner 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.
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.
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
Trouble also can pop up for people who enter the home-buying
process with unreasonable expectations.
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 -- 8 percent.
gains are by no means guaranteed, either.
recalls the plight of home buyers in Rancho Cucamonga, Calif., several 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.
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."
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 or painting the baby's nursery and painting
it again when it turns out the ultrasound was wrong.
in this situation are taking big risks because they haven't built up any reserves.
That can lead to serious financial difficulties when they're hit with a major
home repair. Replacing an heating and cooling system or repairing a damaged roof
can cost thousands of dollars.
Damaged credit? Don't
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 worse.
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.
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," Morganstern quips.