Don’t Buy a Home for These 9 Financial Reasons

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There are plenty of reasons why it might sense for some people to buy a house.

Instead of paying a landlord’s mortgage every month, you pay your own and build equity over time until you’re the sole owner of your biggest asset. When your home is yours free and clear, you can live without housing costs in retirement and then pass it down to your heirs as generational wealth.

Homes can also appreciate, providing future wealth and security with the potential to sell for a massive windfall in the future.

However, homeownership is not right for everyone, and the many associated costs can leave the unprepared with a giant stack of bills they can’t afford to pay.

“There are several financial reasons why someone might choose not to buy a home,” said Josh Dotoli, founder of the Dotoli Group real estate firm in Fort Lauderdale, Florida. “While homeownership can be a good investment for many people, it’s not always the best choice for everyone.”

You Need a Whole Lot of Money Upfront

According to Zillow, the national median home value is $348,539, which means the traditional 20% down payment is around $70,000. Some buyers can get away with as little as 3% down, but that’s still $10,500 — and the expenses hardly stop there.

“Home purchases typically involve significant upfront costs, including a down payment, closing costs and various fees,” said Dotoli.

According to The Mortgage Reports, the average closing costs for 2023 are between 2% and 5% of the loan.

“These expenses can amount to a substantial sum of money, which can be a barrier for those who don’t have the cash readily available,” said Dotoli.

You’re on the Hook for Steep Monthly Payments for Decades

The many upfront costs just get your foot in the door. Once you close the deal, you’re signing up for three decades of monthly payments you can’t ever miss, no matter how your life or financial circumstances change over the years.

“Owning a home means taking on a long-term financial commitment through a mortgage,” said Dotoli. “If your monthly mortgage payments are high relative to your income, it can strain your finances and limit your ability to save for other financial goals. If your income is unstable or you’re unsure about your future financial situation, committing to a mortgage may not be advisable. A sudden loss of income can lead to financial stress and potentially foreclosure.”

Sometimes — Like Now — You’ll Pay More Than You Borrowed in Interest

Also, banks aren’t in the business of lending money for free.

“Over the life of a mortgage, you’ll pay a substantial amount in interest,” said Dotoli. “The total interest paid can sometimes exceed the original loan amount, depending on your loan terms and interest rates.”

For example, Forbes calculates that someone with a 30-year fixed mortgage of $100,000 at the current rate of 8.21% would pay $169,419 in interest alone over the life of the loan.

HOA Fees Can Tack on Hundreds More per Month

If your home is part of a community with shared spaces, communal amenities and rules established by a homeowners association, you can expect to pay a few hundred bucks per month to have a stranger tell you where to put the tulips.

“If you buy a property in a community with an HOA, you’ll be required to pay fees for maintenance and amenities,” said Dotoli. “These fees can vary widely and impact your budget.”

QuickenLoans says the average HOA fee is $200-$300 per month.

Property Taxes Add Thousands to Your Annual Tab

When you own a home, the municipality levies a tax based on your property’s value to fund local governments, first responders, schools and other services.

“Property taxes can vary widely depending on where you live,” said Dotoli. “Property taxes can be quite high in some areas, adding a significant ongoing expense to homeownership.”

In New Jersey, which has the highest rate in the country, the average homeowner paid nearly $9,500 in property taxes in 2022.

“It’s important to factor these taxes into your budget,” said Dotoli.

Also, every homeowner must be covered by an insurance policy. “Homeowner’s insurance is necessary to protect your investment, but it adds an ongoing cost,” said Dotoli. “Premiums can vary based on location and the value of your home.”

Maintenance and Repairs Are Inevitable and Expensive

Renters deal with leaking sinks and dead appliances by calling the landlord, but homeowners need to have money saved to fix things when they break or fail, which everything in the house eventually will.

“Homeowners are responsible for maintaining and repairing the property,” said Dotoli. “These costs can be unpredictable and add up quickly, especially if you’re not handy or don’t have the time to do repairs yourself.”

Most experts recommend setting aside 1%-2% of the home’s value for annual maintenance — $2,500-$5,000 for a $250,000 home — but older homes can cost even more.

The Potential Cost of Opportunities Lost

Hopefully, your home will appreciate over time and you’ll one day sell for a windfall. However, many credible experts advise against homeownership until you’re wealthy enough to buy the property outright, because all the money you put into it could be earning you faster, bigger investment gains.

“When you buy a home, you tie up a significant amount of your capital in a single asset,” said Dotoli. “This limits your ability to invest in other opportunities that may have the potential for higher returns, such as stocks, bonds or starting a business.”

Also, the equity you build in your home can be difficult and costly to access, and home appreciation doesn’t compound or pay dividends.

Houses Mean Roots

Buying a home is a commitment to a very specific geographic area that might not always serve your financial interests if your career, lifestyle or neighborhood change somewhere along the line.

“Owning a home can make relocating more difficult for job opportunities or personal reasons,” said Dotoli. “If you need to move quickly, selling a home can take time, and you may incur costs related to selling, such as real estate agent commissions.”

Appreciation Is Not Guaranteed

Ideally, your home will gain value over the years and decades, but that is not an experience that all homeowners share. There are countless examples of people buying homes in thriving, healthy cities that gradually declined, lost industry, shed residents and forced homeowners to sell at a loss after years of paying property taxes, principal and interest.

“The real estate market can be volatile,” said Dotoli. “Property values can fluctuate, and in some cases, homes can lose value. If you buy a home at the peak of a market and its value declines, you could end up with a financial loss.”

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