You shouldn’t buy a house if…

If you were reading my blog many months ago, you may have caught this post about how my then boyfriend bought a house. I thought it was an absolutely terrible idea for him to do, and so did his brother (a financial consultant). However, he did it anyway. So I wanted to put together a list of signs that you shouldn’t buy a house:

1) You have credit card debt

If you have credit card debt, you shouldn’t be buying a house. Get your cards (literally!) in order and then you can start to think about buying a house. For instance, my ex wanted to use his $8,000 tax rebate from buying his house to pay off his credit card. He should have put this money into his principle, into his house savings fund, ect – however, he shouldn’t have bought the house with $8,000 worth of credit card debt anyway!

2) You just want to feel grown up

You shouldn’t buy a house just because you think you’re old enough and it is “about time” you do SOMETHING to prove you’re an adult. Just because you’re “old enough” doesn’t mean that buying a house is a financially smart decision for you. If you really want some added responsibility – get a cat! It should also go without saying that just because “everyone else is” – isn’t a good enough reason either. Do we need to have a talk about peer pressure?

3) You don’t have 20% down

If you haven’t saved enough money to have 20% down, then you aren’t ready to buy a house. Get your 20% down and then get a house. You’ll save yourself a butt-load of money by not having to get mortgage protection insurance.

4) You can’t pay the 20% down without using your E-fund

If you’re counting on your E-fund as part of your 20% down, STEP AWAY FROM THE HOUSE. You’ll need that E-fund in case you loose your job, the water heater breaks, ect, ect, ect. That 20% down you’re saving should be APART from your E-fund.

5) You don’t have a sufficient E-fund

If your E-fund is not sufficient, you shouldn’t be buying the house. It should be fully funded up to the level that is appropriate for your family. For me, this would mean that I would need a $10,000 E-fund IN ADDITION to my down payment. Being without an E-fund for the sake of owning a home is NO EXCUSE – and a recipe for financial disaster.

6) You don’t understand how much more a house costs than a mortgage payment

I’m not sure if there is a general rule of thumb about this, but I’ve always believed that you should save 20% of what you pay to your mortgage into a “House Emergency Fund” – this way if the water heater breaks or you need to re-do the roof or maybe you want a new kitchen counter, you have a fund to pull from. So if your mortgage payment is $1,000/month, you should IN ADDITION be putting $200/month into a house savings account with a goal of 10% of the home’s value in that account.

7) You plan on moving within 10 years

Sure, some people will say 5 years or 7 years, but lets me honest, to be sure you can get enough equity in your home so that you’re not underwater in your home loan during the next recession you should know that you’ll stay at your current location for the next decade. I don’t plan on buying myself a house until I get tenure – it will be my tenure present to myself – and tenure will be insurance that I won’t be leaving any time soon!

8 ) You can’t afford it

There is a huge difference between what you can afford and what you can get a loan for. Just because you get approved for a $200k loan doesn’t mean you can afford a $200k house payment. And just because you can SQUEEZE it into your budget doesn’t mean that it makes financial sense to strap yourself to a loan payment that stretches your budget too thin. Don’t spend more on your mortgage than you comfortably can afford if you were to lose 40% of your monthly income – this way you can live on 60% of your salary and put 40% into savings and investments.

9) You can’t afford the 15-year mortgage

Now, there is a camp that claims that it is better to get a 30-year mortgage because the money that you’re not putting into the mortgage can be put into mutual funds or stocks or other high interest funds. That is all fine and dandy if you choose this route. HOWEVER, for it to make financial sense you have to be putting the difference between the 15yr mortgage and the 30 year mortgage into investments. If you are getting the 30-year because you can’t afford the 15-year there is a problem here. You need a smaller loan or a less expensive house.

10) You think you’re “throwing” your money away in rent

If you believe that rent is just “throwing your money away” you don’t know enough about money yet to buy a house. Renting is not “throwing away” your money. You get a roof over your head, a living place with free maintenance, and the chance to save money before you purchase a home, with the freedom to leave if you have to relocate for whatever reason. If you still think that renting is just throwing away money please read the post I wrote here about paying for a house in full while renting.

11) You can’t afford to furnish your new house

As Carrie… On The Cheap reminded me, you need to have money to furnish your house. Her and Lloyd are saving up $15k to furnish their house. You don’t want to get into credit card debt because you bought a house!

Did I leave anything out? Are there other signs that you shouldn’t be buying a house right now?

16 thoughts on “You shouldn’t buy a house if…

  1. Awesome article!! You should definitely submit this to a carnival!

    I’m so happy that you share my views on buying vs. renting. Lloyd and I talk about this all the time and I even forwarded him your article about 100% down on a house and he said he really liked it.

    The only other thing I would add is that you shouldn’t buy if you don’t have a “New Home Expense” fund. Lloyd and I are budgeting $15K total for this. I don’t know how many people save 20% for a house and then go to the furniture store and rack up 10K in credit card debt in furnishing their house. Don’t forget about home repairs like new A/C, hew heater, etc. if anything breaks. You gotta be prepared for what you’re gonna put IN the house as well!! 🙂

  2. I like it! I like how you point out you should be able to AFFORD a 15 year, even if you choose to go another route.

    Housing is so expensive here that I just can not envision buying a property anytime soon.

    1. Yeah, after that link you sent me a few days ago, I realized that it didn’t matter if you go 30 or 15, as long as you were able to afford the 15. Otherwise it is too expensive!

  3. Thanks for this list. I get so tired of people telling me I should buy a house since I am 28 and it would give me a tax break. They obviously don’t think about the things you mentioned.

  4. You are wiser than your years SS4BC. Many people NEVER figure this out, and most not until they’ve owned a home (or two)!

    And I love your rule of thumb about the 20% into a house emergency fund! Especially if you buy an older home or one that has lots of deferred maintenance. Our current home was bought at foreclosure which was a good thing since we were able to step into a house with LOTS of equity even in today’s market. But logic would tell you that a homeowner who couldn’t keep up their payments certainly couldn’t keep up with normal repairs and maintenance. Our monthly budgeted amount for repairs and upgrades is exactly 20% of our mortgage. The rule of thumb I always heard was 1% of the home’s value annually. (i.e. $300,000 home would be $3,000 in repairs annually or $250 monthly.

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