4 reasons to not buy a home-yet
It seems like 2013 is the year when the housing market begins to creep back towards the highs of yesteryear, albeit slowly. As a result, many homeowners who've sat on the sidelines are eagerly chomping at the bit to jump back into purchasing a home. However, while their intentions may be good (investment, purchase to live in long term), they may not be ready to purchase a home. Here's why:
1. High debt-to-income ratio
If your debt to income ratio is higher than 43 percent, then you may be out of luck when trying to secure a loan:
According to USNews.com, "...qualified mortgages will generally be available to consumers with debt-to-income ratios of 43 percent or less." If you're above 43 percent, then you'll need to put the brakes on finding a new home and reduce your debt load as this can impact your ability to get approved for a loan.
2. Unrealistic expectations
Let's say you make $65,000 per year. You have no business buying a $500,000 house. That ship of irresponsible lending and entitled buying has sailed, and it would behoove you to set realistic expectations. While the housing bust which started in 2008 has allowed for many homeowners to take advantage of mortgage modifications, you won't be as lucky in 2013. Documentation requirements are higher and regulations are tighter. Sit down with your budget and talk to your lender in order to get pre-qualified. This can help give you a realistic range to work with when looking for a home.
3. Inconsistent financials
All deposits must have a home. In other words, a solid paper trail must be established for all of your income. This includes losses, as well. Do you have multiple overdrafts in your checking account? The bank deems this a red flag. Is your income inconsistent? The bank can look at this as a reason to decline your mortgage application. Set a realistic budget and clean up your account. Eliminate overdrafts and make sure that all deposits are consistent and are able to be traced back to a legitimate source.
4. Competing with 'the Joneses'
If you're buying a home to compete with your sister or neighbors down the street, then you're buying a home for the wrong reasons. Buy a home because it makes good financial sense, not because it'll soothe your ego to buy a bigger home than everyone else. Ask homeowners who did this back in 2006, and they'll tell you that it's not worth it, given the impact on their credit and subsequent ability to buy or rent a home today.
Set realistic expectations and take a long and hard look at the state of your finances before embarking on the journey to buy a home. If not, then you could be setting yourself up for an epic battle with your credit and the bank should you find yourself not in a position to consistently meet your financial obligations on time.