5 Reasons Why You Shouldn’t Buy a House

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We’ve all heard it before. The adage that you must buy a house if you’re serious about your money. Some even argue that if you continue to rent you’re foolishly throwing your money away.

All you need to do is look at the fact that 17 million people planned on buying a house in 2014. That reflected an increase of nearly 1 million from the previous year. As with anything finance related, you need to make a decision that serves your best interests. If you’re on the fence about buying a house, take a look at these five reasons why you should continue to rent.

You’re Carrying too Much Debt

One of the key factors lenders look at is your debt level. Buying a house is expensive, and they want to make sure you can handle the mortgage. Most lenders want your debt level to be no more than 28 percent of your gross income and 36 percent when your mortgage is included.

So, if you’re carrying excess student loan or consumer debt, you’re likely going to be a bad mortgage candidate. This will result in a potentially higher interest rate and thus increase your cost. Focus instead on knocking down your debt and then turn your attention to a house.

You Kill Your Flexibility

Flexibility is vital when you’re just starting out in your career. You want to be able to take advantage of potential new jobs that require moving. Guess what happens when you have a mortgage? You lose flexibility. Instead of being able to leave right away you must focus energy on selling the house.

Breaking a lease can be a hassle, but is usually much less hassle than selling a house. You don’t want to give up flexibility for something that may not be in your best interest.

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You Have Little to Put Down

Budgeting for buying a house requires careful financial planning. You can get a house for little down though that is not going to be in your best interests. Experts recommend putting down at least 20 percent of the purchase price of a house.

That can be a significant amount of money, but it ensures more of your money is working for you and avoids the added cost of Private Mortgage Insurance. If you have little to put down, consider taking the time to build up your down payment instead.

You’re Viewing it as an Investment

If you’re viewing buying a house as an investment, then you need to change your thinking. Unless you specifically invest in real estate, you need to look elsewhere  for potential investments.

What many overlook is that buying a house usually brings on added short-term costs. If you sell the house quickly, those costs add up to additional losses.

It Brings Added Responsibility

There is something romantic about buying a house. You are arguably creating something that will be your very own. What gets overlooked is the reality that buying a house comes with added responsibilities – financial and otherwise.

Not only will the added financial and maintenance responsibility bring added stress when you’re just starting out, it can also hold you back from focusing on other things like paying off student loans, growing your wealth and focusing on your career. Responsibility can be great, but not when it brings unnecessary stress.

Buying a house is a rite of passage for many. There is nothing wrong with that. Just make sure it makes sense for you before signing on the dotted line.

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  • klaus kerl

    No, No, No, No, and Maybe to John’s five points! John’s discussion is too simplistic. A grade-school analysis of a complex subject. Its been a long time I’ve read such poor advice! There are many reasons that John skips over, for supporting purchase of a house, that his one-dimensional writing omits, to the point that its valueless, except for beginning a discussion of an important subject. A brief response to his 5 points is:

    1. Too much debt is never a problem; the problem always is insufficient income to carry a debt! My first house was near a University, and I knew the mortgage (from the seller, I couldn’t qualify from a bank at all) was beyond me, but I also knew I could rent out 4 or more rooms that covered the whole mortgage, and I lived there rent-free! Equity debt (in income-producing things) is very healthy, and wealth-promoting. Debt to buy toys or vacations should be minimized (non-income creating). Just be creative enough to develop stable incomes FROM THE PURCHASE to cover each debt!

    2. Kills your flexibility? Its always a choice between flexibility and commitment to longer-term investments. I vote for the latter in nearly all cases. Of course when you are in your early-investment period (in your 20’s, right after college?) you should plan to be living in a relatively larger city (over 500,000?) to maximize your opportunities for employment, so you don’t have to plan to relocate your house to jump to better jobs. I flipped a coin between Seattle and San Francisco when I was 28. I loved both and couldn’t decide, so the coin flip reduced my decision stress. Seattle won, and I’ve been very happy; but I’m sure that SF would also have been good to me.

    3. You have too little down? This is too simplistic an answer. Depends on your ability to cover your debts. In my first house I paid NOTHING down, but the seller (who was retiring) wanted monthly income, not a large cash payment. For three years I RENTED the house on a fixed purchase agreement, but got significant “partial-rent” credit towards an eventual down payment credit of $20,000 (including 5% interest on my extra payments). My college housemates paid for it all.

    4. You’re viewing it as an Investment? Of course the biggest investment you will ever make in your life (typically your house) should always be analyzed as an important investment. John’s comment here is BS! Important investment criteria should always be used when you buy high-dollar stuff like a house. Is the house in the lower half of the neighborhood’s average value? Good. Can you learn house repairs? Good. Is the location value likely to grow? in an urban area? in the path of local growth? good; can you house-share if needed with local tenants? good.

    5. It brings added responsibility? Well, if you’re not looking for responsibility, then maybe a house commitment is not for you. Maybe a marriage partner is not for you. Maybe a job is not for you. Responsibility and commitment makes you grow, gives you motivation, gives you more opportunities, and makes you richer. Nearly all of us should be looking for more responsibility, because that usually is accompanied by wealth and happiness too.

    Nuff said. Klaus

    • thatdemmedpimpernel

      The problem comes from both sides being simplistic.
      SOMETIMES it is a bad idea to buy a house, even if you can afford it for the reasons John stated. SOMETIMES it is a good idea based on what Klaus said. It is hugely variable depending on one’s situation and a general blog post without any kind of specifics will never cover that.
      Klaus’ seller-financed home in a consistent rental area is not that common.

      1. Too much debt CAN be a problem even if one to carry it. Instead of looking at your income, consider one’s cash flow situation. Ten small debt payments of $1000 each does not equal one larger $10,000 payment if the smaller loan payments restrict cash flow. What about retirement? Can the individual still save? What about the day-to-day costs of owning a home that renters don’t pay? All of this should be considered.

      2. Owning a house CAN kill your flexibility. Look at
      Klaus’ example; a potential follower of Klaus’ advice does not have the flexibility to relocate or live where they choose. See point 4 for more.

      3. Remember any loan with less than 20% down has mortgage insurance premiums; even the VA loan has insurance copay for low down payments. These insurance payments (6.25% on top of the interest last I checked for a conventional loan) are added to the APR charged for the entire life of the loan. All of a sudden that
      3.25% loan is much larger. And, Klaus, remember not everyone can rent out their extra rooms all the time. eg, Would a parent with a newborn want to rent rooms to a bunch of college students? Would a bunch of college students want to be in a home with a baby?

      4. We forgot 2007 so quickly. A house CAN be an
      investment. It CAN ALSO be a devastating millstone. What if a young professional has to change jobs? That is more probable at the start of a career than the end. I’ve known people who have had to vacate newly purchased homes in just a few years; a low down payment (see point 3) added to fees associated with moving, plus real estate agent costs and the equity built in 5 years can disappear quickly. A loan on a house $150,000 (actual price around $155,000 with minimum down payment) with a 3.5% 30 year fixed mortgage in five years will gain about $15,000 or 10% in equity, not bad; three years, about $8,000;
      one only $3,000 Then one remembers how much was paid in fees to the mortgage company (a couple thousand, usually), plus your real estate agent (@ 3%
      commission, about $5,000)? Klaus, you didn’t pay this because the owner bankrolled most of the costs everyone else usually pays. Most people aren’t so lucky. Also remember it takes very bare minimum of 30 days to close on a house. If someone has to make rent in one location, plus a mortgage payment somewhere else, it kills their
      cash flow.

      5. Yes it is additional responsibility. People should be careful making, as Klaus said, the largest investment in their life. They should also think very seriously about the down side as well as the up.

    • Guest

      So, Klaus, let me get this straight: From what you have told us, you can’t qualify for a mortgage from a bank, didn’t have a down payment, had to rent from the seller for three years AND have four roommates to help you pay off the mortgage, and yet you feel you are entitled to give advice on home buying? No thanks. I will take my advice from an actual professional. Nuff said.

  • CynicFan2

    Klaus pretty well sums up my disagreement with the author. Home ownership is the pinnacle of adulthood. It teaches responsibility far beyond keeping a job. While I’ve been less than lucky in homeownership resulting in great financial gains, it still is important psychologically. It connects you to the community, it connects you to visceral needs of ownership and the pride therefrom. It grounds you and makes it easier to tolerate setbacks at work. I can only foresee renting as an option early in life before you get on your financial feet and late in life when you choose to pay someone for the upkeep and maintenance.

    • Guest

      What if you lose your job, and can’t afford the payments? Is foreclosure a pinnacle of adulthood?

  • One of them too

    For anyone considering buying, the comment by Klaus below has far more value than the article. Not sure who the article targets, but it sure isn’t homebuyers.

  • Guest

    Great article! I am working on paying down my debt, while having a full time job and going to school. At this point in my life, though I would love to buy a house, however I simply cannot afford the down payment or maintenance of one, particularly as a single person.