Steven Senne, file, Associated Press
FILE - In this file photo taken Jan. 10, 2011, a for sale sign hangs in front of a home, in Millis, Mass.
Buying a home should be the number one financial goal for a family. It will strengthen and solidify the family in a variety of ways. That said, there are times when a family should not buy a home.
Here are five examples of situations in which you should not buy a house:
1. If you have one already: As anyone can tell you, moving is such a hassle that it is to be avoided at all costs (though some who say this have done it repeatedly). While selling your home and buying a new one — in that order — is a hassle and should only happen once or twice in your lifetime, buying a house and selling your old one — in that order — is just too risky.
Most people simply cannot afford the expense of having two mortgages. Add to that, the risk that real estate values decline just at the time you’ve acquired an extra house and you could see your financial future obliterated. Imagine that you end up owning two $200,000 homes, each with a mortgage of $180,000. If the economy tanks, the value of both homes could drop below $180,000 and at the same time you could lose your job. Instead of buying an extra home, write an offer on the home you want that is contingent on the sale of your home — or simply sell your home and then buy a new one.
2. If you’ll be moving soon: Homes tend to appreciate in value over the long haul. In the short run, however, real estate prices move almost like the stock market, going up and down. The impact of this is that you will be living in a location for fewer than five years, be cautious about buying a home — you may not get your down payment back. If you won’t be there for more than three years, you definitely want to be renters for a while. Invest your down payment money wisely so that it will grow while you’re renting and be ready for your next home purchase.
3. If you have no down payment: It may seem like it goes without saying that if you don’t have a down payment you shouldn’t buy a home — because you can’t buy a home. I mention it because there are a few ways to buy a home without a down payment. As a general rule, the risk of owning a home in which you have no equity is too high to recommend this as a strategy. In most situations a family that wishes to own a home and is willing to make reasonable sacrifices to do so, can save up a down payment within 12 to 24 months.
4. If you have crummy credit: If you have not been paying your bills on time, regardless of the reason, your credit situation will cause you to pay much more for your mortgage loan than others are paying. That difference may have such a negative impact on your ability to qualify and ultimately to afford a home you may be better off renting for two years while you reestablish your credit.
Start paying every bill before the due date so you can be ready. Unless you’ve had a foreclosure or bankruptcy, you can generally become bankable within two years of paying everything on time. Keep in mind that a co-signor with perfect credit won’t improve your loan application if you have bad credit.
5. If you are unable to live in the house: It may not be a good idea to buy a home if you can’t live there. If you will have to pay to live somewhere else due to a work assignment, health or other factor, it may not be a good idea to buy or even to keep a home you own. The best example of this situation would be a retired person whose health is declining and needs to live in an assisted living situation. Keeping the old home while living in assisted living is an expensive and pointless luxury. Selling the home can provide the resources to pay for the assisted living.
Buying a home remains a key part of prudent financial planning for families — not because they are the best financial investment but because they facilitate stable families. If now is not the time for you to buy a home, be sure you are preparing for the time when you can.