4 Good Reasons Not To Buy a House

Owning a home has been a part of the American dream for many years, but that doesn't mean it's right for everyone. For example, if you move around every few years, you can spend so much on closing costs and other fees that you would be better off renting. Here are four situations where you are probably better off renting.

flickr/ Payton Chung

You don't have a steady job
There is a big difference between making a good living and having a steady job. Sure, you make enough to cover a mortgage payment now, but what about in a year from now? Five years?

There are a lot of American workers who fit into this category. Some people have jobs that are temporarily grant-funded or are otherwise non-permanent positions. And, there are the millions of people who are self-employed or own their own businesses, whose income varies from year to year.

If you happen to lose your job, or are forced to accept significantly less income, it's much easier to downgrade your lifestyle if you're a renter. At most, you'll probably be locked into a year of rent payments, and then are free to move to a smaller or less-expensive apartment without the hassle and stress of selling a house.

An "unsteady" job also refers to one that may require you to move around somewhat frequently. While a lot of people who move every few years do buy homes, consider the additional costs of buying and selling often.

Closing costs on a home generally run about 3% of the home's value. So, on a $200,000 home, expect $6,000 of fees and other upfront expenses. This isn't a huge expense if you stay in the home for 10 years, but if you move every two to three years, these expenses can add up tremendously over time, and eat up your profits when you sell.

You have a great deal on your apartment
If you have a good deal on your apartment, and it meets your needs, why mess up a good thing? Many apartments, especially in cities, are rent-controlled or rent-stabilized.

And, a lot of large apartment complexes will renew a lease at the same price for several years, while raising rent on new tenants. This is especially true in areas where apartment complexes have trouble staying full. I lived in the same apartment for four years after college, and at the end I was still paying my original $900 per month in rent when the same apartment was going for $1,150 to new residents. If you have a deal like that, it's hard to justify leaving.

You don't have a lot of cash in the bank
Now, I realize it's not terribly hard to buy a home without a large down payment, but that doesn't mean it's a good idea.

For instance, consider the most popular low down payment loan option, the FHA mortgage, which allows buyers to purchase a home with 5% down. Not only does this make your mortgage payment more expensive, since your financing more of the purchase price, but it also adds FHA mortgage insurance to your tab.

flickr/ 401(k) 2013

Currently, FHA mortgage insurance requires an upfront payment of 1.75% of the loan amount plus an annual premium equal to 1.35% of the loan's balance. So, on a $250,000 mortgage, you can expect $4,375 added to your upfront costs and about $280 added to each of your monthly payments.

If you can deal with renting for a few years, it may be a better option to rent an apartment or home and save your money until you have a more substantial down payment. In order to avoid mortgage insurance, lenders want 20% down, and many require a certain amount of cash reserves in savings.

You like simplicity
I have spoken with many former homeowners who decided to rent again, and they simply cannot get over how much simpler life is when renting.

When you rent, someone else (the landlord or property manager) generally takes care of all the maintenance and repairs on the home. If your toilet breaks, or your faucets are leaky, it's usually no more of a hassle than calling the maintenance man, which won't cost you a dime. Instead of spending thousands of dollars when the air conditioner kicks the bucket, when you're renting it isn't your responsibility.

The bottom line is that there are lots of very good reasons to buy a house, but there are also a lot of good reasons not to as well. Your own American dream depends on your particular life situation, your preferences, and your finances.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 16, 2014, at 8:30 PM, traceytolliver wrote:

    Don't forget mortgage companies are sneaky and dirty!!!!!!!!

  • Report this Comment On August 17, 2014, at 2:47 AM, mike5196 wrote:

    You might get transferred

  • Report this Comment On August 18, 2014, at 2:23 PM, cbcs wrote:

    Good article in general, but I see one mistake and think it's overly simplistic. It's a starting point for conversation.

    The mistake I see is that if you don't have a steady job, you can't get a mortgage anyway.

    Overall, it's this simple: everyone should own a home. If you can't afford a single family, buy a multi-family and live in one of the apartments. Don't worry about the size of your down payment, focus on getting a modest home with a 15 or 20 year mortgage.

    For example, I can own a single family. My wife and I have chosen to live in a duplex I own. I have a 20 year loan and my principle, interest, taxes and insurance is $960 per month. I rent the downstairs apartment for $850 per month. You do the math. I have 10's of thousands in equity and put all the money I save into other investments. No "great deal" on an apartment will give you this.

    You don't need a lot of cash in the bank. What you need is a budget, to track your expenses, and have a plan. A few thousand will suffice with good credit if you need more for unexpected repairs. Mortgage insurance is a small price to pay and goes away quickly on a 15 year note.

    The one thing I cannot argue with in this article is if you want simplicity. Unfortunately, simplicity often gets confused with laziness. If you don't buy a home because of simplicity, you have made a conscious decision to put yourself in a vulnerable long term financial position. That's okay, as long as you understand that it was your decision. (And then please don't complain about your rent down the road when the rest of us took a slightly less simple route.)

    My mortgage will be paid off and my cost of living will be pennies on the dollar compared to someone's rent...which will always go up. My friends that rent constantly complain about how much it costs. My friends that own talk about their investments.

    Food for thought.

  • Report this Comment On August 18, 2014, at 3:49 PM, dragonmonkey wrote:

    Sorry cbcs, but "everyone should buy a home" is the worst advice imaginable and is no more helpful than saying everyone should rent. Getting a great deal on an apartment can save you tons of money over buying...monthly payment is less, no closing costs, no repairs, no real estate taxes, etc. I've owned when it made sense, but rented for the past 8 years while all that extra money (plus all the down payment money) has tripled in the market. If your duplex tripled in the last 8 years, congrats. There a many factors, and most of the positive ones (like the minor tax break) are over-hyped by real estate agents trying to make commission. Once I move again to a more permanent spot, I'll reconsider buying again depending on the fundamentals.

  • Report this Comment On August 18, 2014, at 4:34 PM, PoorerThanU wrote:

    3% transactions costs, eh? You might be able to buy a house and spend 3% or less in transaction costs, but you absolutely cannot sell for 3% costs.

    I am buying houses as a landlord to rent. I would like to buy houses to flip. By the time I add the real 8-10% transactions costs to get in and get out, the profits are not large enough to justify the risk. ALL professional flippers I have discussed it with say allow 8-10% for in/out.

    I would tell a homebuyer who is moving every few years to use 8-10% transaction costs. It's more realistic.

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