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Many people dream of becoming homeowners, especially given the benefits involved. When you own property, you get to call the shots. You also get to build equity in a home instead of throwing money away on rent, all while enjoying some lucrative tax breaks.
But although you may be eager to become a homeowner, the last thing you want to do is dive in before you’re ready. Here are a few telltale signs that you should hold off on buying property for the time being.
1. You don't have enough money for a decent down payment
You don’t necessarily need to make a 20% down payment on your home; often, you’ll get away with putting down much less. But if you don’t put down 20% on a conventional loan, you’ll be hit with private mortgage insurance, or PMI, which is a premium that’s tacked onto your monthly mortgage costs, and thereby makes your home more expensive.
Now, PMI isn’t the end of the world, and in some cases, it pays to take on PMI if you don’t have much in the way of a down payment, but still earn a healthy enough salary to cover your monthly housing costs and more. But if that’s not the case, and the reason you don’t have a decent down payment is that you’re barely making ends meet, then it pays to consider holding off on homeownership until you’re in a better place financially.
2. You don't have any emergency savings
Owning a home doesn’t just mean taking on a mortgage; it also means having to bear additional costs like property taxes, homeowners insurance, maintenance, and repairs. And while the first three items are fairly predictable, the latter -- repairs -- can strike out of nowhere and cost thousands, depending on the issue at hand. That’s why you need a healthy savings cushion before buying a home. If you don’t have much in the way of emergency savings, then you’re better off delaying homeownership until you’ve built up some cash reserves -- ideally, enough money to cover at least three months of living expenses.
3. Your credit is poor
Having poor credit could make it difficult for you to buy a home in the first place, since the lower your credit score, the less likely you’ll be approved for a mortgage. But even if you do get approved, you’ll most likely be stuck with a high interest rate on your home loan that makes your monthly payments more expensive than they need to be.
A better bet? Working on boosting your credit before applying for a mortgage. You can do so by paying off some of your existing debt, as well as making all incoming bill payments on time and in full.
4. You're not sure where your career will take you
When you buy a home, you don’t just make a down payment; you also incur closing costs that you’re responsible for paying up front. You can usually recoup these costs when the value of your property goes up, which tends to happen with time. But if you sell your home shortly after buying it, you might not have lived there long enough. Therefore, if you’re new to your career, or you’re not sure whether you’ll still be working in the same city a year or two from now, then it pays to delay homeownership until you’re on steadier ground.
As a general rule, recouping closing costs takes about three years, although in some cases you may need closer to five. The only exception is if you manage to buy a home in an up-and-coming area, and you snag that property before prices there explode. In that case, you might sell your home a year after you buy it and come out OK. But in most cases, you shouldn’t rush to buy a home if you don’t plan to stay for three years or longer.
It’s natural to want to buy a home, but if you do so before you’re ready, you could wind up regretting it. If any of the above circumstances apply to you, consider pushing back that milestone so you don’t make a major financial decision that will come back to haunt you.
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