5 Reasons Not to Buy a House

You may not want to buy a house if any of these things apply to you.

Buying a house can often help you improve your financial situation as you can begin building equity as you pay down your loan. You'll acquire ownership in a valuable asset over time after making your purchase, and hopefully the worth of that asset will rise as property values go up over time.

But while buying is usually a good financial choice that can increase your net worth, that's not the case in every circumstance. In fact, if any of these five things apply to you, you probably should not purchase a property -- at least not anytime soon.

1. You'll be moving soon

If you're planning on moving within the next few years, it makes little sense to buy a house. There are huge transaction costs when you make your purchase and again when you sell. The real estate agent's commission alone could be 6% when you sell, and that doesn't include all the other upfront expenses you could owe during both your purchase and sales transaction -- such as transfer fees, mortgage origination costs, appraisals, inspections, and more.

It takes several years, in most cases, for your property to go up in value enough to cover these basic expenses that have to be paid when buying and selling, so you'll want to buy only if you intend to live in the house for at least a few years. Fulfilling this requirement and remaining in your home for no less than two years can also help you avoid capital gains taxes on any profits you make.

2. You don't have a down payment

Most mortgage lenders want you to put money down on the property -- at least 3%, and ideally closer to 10% to 20%. Without a down payment, it's sometimes possible to find a loan, but it's extremely likely your interest rate will be higher and there will be more upfront fees that you'll owe.

Aside from the fact your loan options are limited with no money down, you're also taking a really huge risk. You'll owe as much as your home is worth if you borrow 100% of its value. Because of transaction costs, that would mean you'd inevitably have to bring cash to the table if you needed to sell quickly so you could pay your loan in full along with other sales expenses.

If property values fall even slightly in circumstances where you make no down payment, you could also end up owing far more than your home is worth. This could leave you either trapped in the property or facing a damaging short-sale or foreclosure that affects your finances for years to come.

3. Your credit score is low

If your credit score is low, you'll again face the prospects of having few lenders willing to provide you with loans. And your loan will be much more expensive than if you had a better score.

You can find lenders willing to provide loans with a score as low as 500, or perhaps even less in some circumstances. But you'll absolutely pay an added price if your score isn't higher.

In an ideal world, you'd wait to buy until your credit score reaches around 740 so you could get the absolute best rates and have a huge choice of mortgage options. But if that's not possible, aim for a minimum score of about 620 to 640 so you can have more choices when it comes to lenders and qualify for rates that are at least fairly reasonable.

4. You have no emergency fund

An emergency fund should be a prerequisite for anyone thinking of buying a home. Without one, the chances of foreclosure are far too high because any interruption in income could leave you unable to pay your housing bills. Even if your income stays the same, major or even minor home repairs could leave you coping with debt that makes life difficult.

You should aim for a fund that covers three to six months of living expenses when possible, but if you can't wait that long, be sure you have a few thousand dollars saved before committing to take on all of the expenses associated with homeownership.

5. You can't afford closing costs

Finally, if you don't have enough to cover closing costs, you should seriously think about putting off your home purchase until you do. Closing costs are upfront fees that equal around 2% to 5% of the purchase cost. They have to be paid one way or another, so if you don't have the cash to cover them, you'd likely face a higher mortgage interest rate or would have to borrow more and roll them into your loan.

By making sure you have the money to cover closing costs, you avoid making your mortgage more expensive. Taking this step, combined with saving up a down payment, improving your credit, and saving for emergencies before buying can help you maximize the chances you'll be able to afford your home over the long term.