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Home prices are starting to recover, interest rates are creeping up, and many people are considering buying a home now before real estate prices or mortgage interest rates edge up any further.
However, while higher interest rates and higher home prices may be on the horizon, that doesn’t mean you should rush out and buy simply because you are trying to time it right. Buying a home is a big commitment, and you need to be prepared for it.
There are times when you may want to think twice about purchasing a home. Here are five good reasons to wait to buy:
1. You have a lot of high-interest consumer debt.
While you might be able to get by with buying a home when you have a small amount of consumer debt, it’s rarely a good idea to make this sort of purchase if you already have a lot of high-interest debt.
Before you purchase a home, make sure that your high-interest consumer debt is under control. Use the 28/36 qualifying ratio to see where you stand. This ratio, used by some lenders, looks at your mortgage payment and your total debt. Lenders will allow you to spend 28 percent of your total income on your mortgage payment, real estate taxes, and insurance. Your total debt payments, which can also include car payments or student loans, cannot add up to more than 36 percent of your gross monthly income.
If your debt to income ratio is too high, consider paying some of your debt down before buying a home.
2. There’s a good chance you will end up house poor.
Do you have to stretch your budget to afford your current mortgage payments? If so, take it as a good sign that now is not the time to buy.
Homebuyers that overextend themselves often end up house poor, with their mortgage payment taking up such a large chunk of disposable income that there isn’t enough money for other expenses—or for enjoyable activities. This can greatly reduce the quality of your life. If you feel like you will have difficulty paying your mortgage, you may want to wait to buy.
3. You need to be able to sell within the next 12 months.
Take a look at your living situation. If you have doubts about your job security, or if you are planning to move soon for some other reason, hold off on buying.
It’s one thing if you buy with the intention of renting out the house when you are ready to move. It’s another thing altogether if your finances will be burdened by the need to sell the home quickly. Selling is a time-consuming and often difficult process; only buy if you know you are going to keep the house for a substantial period of time.
4. You and your partner can’t agree.
Are you having trouble coming to an agreement with your co-buyer? Whether you’re buying a home with a significant other or a business partner, you both need to be satisfied with the terms, location, and cost of the home. If one of you isn’t happy with the home, put off the purchase until you can find what’s right for both of you.
5. You have concerns about the location.
Location, location, location! This is the cardinal rule of homebuying. Can you afford a home in a location that makes sense for your situation? Consider local amenities, schools, proximity to your job, and your own particular preferences, such as whether you want to live in the city, the suburbs, or the country. Location has a lot to do with quality of life, so if you’re looking at a home that isn’t in a good location with access to most of what you want, think twice about buying it.
You don’t have to buy just because everyone says now is a good time. You can, instead, put it off and reconsider your situation. Don’t be pushed into making a decision that does not make you feel truly comfortable.
Miranda Marquit is a freelance writer and professional blogger specializing in personal finance, family finance and business topics. She writes for several online and offline publications. Miranda is the co-author of Community 101: How to Grow an Online Community, and the writer behind PlantingMoneySeeds.com.
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