Although some people might encourage home buying, there are good reasons not to invest in a house. Not that home buying isn't a good investment -- sometimes it can be. But if you buy at the wrong time, you could lose money. Ultimately, you have to decide whether a home purchase is right for you. However, it's important to be realistic. Here are seven reasons not to invest in a house.
The truth of the matter is, home purchases are not always good investment. This is one of the main reasons not to invest in a house. If you decide to purchase, research the local market. Too often, people buy homes, only to see their property values decline in a few years. And if home values don't improve, it can be difficult to sell or they lose money on the deal.
Unfortunately, if you pay $200,000 for a house, you don't actually repay the bank $200,000. Every mortgage loan has an interest rate tied to it, which is basically the bank's fee for providing funds. Even with a low interest rate, you'll ultimately pay hundreds of thousands more than the original purchase price. Sure, you can write off mortgage interest and reduce your taxable income, but this savings doesn't compare to the interest you'll pay over 30 years.
Even if a mortgage lender pre-approves your application and offers a specific amount, this amount might be too much for your budget. Mortgage lenders don't take into consideration other expenses, such as childcare expenses, insurances and other monthly payments that don't show on your credit report. When shopping for a home, it's easy to get caught in the excitement and overspend.
You can buy a newly built home, but there's no escape maintenance and home improvement costs. And unfortunately, these costs can drain your bank account. As a renter, you're not responsible for many of these expenses.
Buying a home isn't cheap, and some people clean out their savings account to make a purchase happen. You have to pay a down payment, which can be as high as 5% of the purchase price, and there are closing costs which can average between 2% and 5% of the purchase price, according to Zillow. It might take years to save money to purchase a home; and after the purchase, you're left with nothing in the bank.
Home buying might be an excellent investment if you're looking to stay in one place for many years. But if you enjoy bouncing around from place to place, or if your job requires frequent moving, buying might not be worth the investment. It can take years to recoup money spent for down payments and closing costs. If your house declines in value before you're able to recoup, you may have to sell for far less than you paid.
When you're renting, simply give your landlord a 30-day notice once your lease is about to expire and you're free to move. It's not that easy when you own. You have to sell the property and this can take many months, depending on the local real estate market. And sometimes, homes don't sell.
Everyone's situation is different. For some, buying a home is a terrific investment. But it's not a good investment for others. Weigh the pros and cons, and then decide if it's the best decision for your family. Do you think home buying is a good investment, and why?