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...
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 likely will be better off renting for a while and buying later or not 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 says, and “it’s really easy to lose your house.”
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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 wreak havoc on a transaction, and it’s often too late to fix them after the closing.
“People get into financial difficulties, and it can happen very quickly,” says David Morganstern, a certified financial planner in Portland. “What we try to do is 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,’ we always counsel them to think more broadly.”
There are some good reasons to hold off buying.
A shaky job
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 closes 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 résumé 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. Closing costs and other home-buying and -selling fees can be a problem, too. Take commissions to agents. They can leave someone in the hole if the property is sold shortly after it’s bought.
“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.”
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.
And property-value gains are by no means guaranteed.
Jones recalls the plight several years ago of home buyers in Rancho Cucamonga, Calif. 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 moved and took jobs with them. “For Sale” signs sprouted from area lawns like weeds. Asking prices fell.
“These were new houses,” Jones says. “When people moved in, they put up additional money for landscaping and decorations and putting in pools, et cetera. But there was a lot of money lost.”
Dreams too big
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.
Buyers who have no reserves are taking big risks. That can lead to serious financial difficulties when they’re hit with a major home repair. Replacing a heating and cooling system or repairing a roof can cost thousands.
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 make things worse.
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, officials say.
So, somebody who diligently pays the bills may not be able to refinance at a lower rate.
“If you’re overextended 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.