11 quick-fire situations when you should not buy a home
Buying a house, especially when you’re younger is still an incredibly smart financial decision in the majority of cases. Home ownership is accepted as the cornerstone of wealth for most New Zealanders, with a debt-free home by retirement being the most common life goal.
On the flipside, society is changing and there have never been more choices for Kiwis to build wealth too. So, here is a quick-fire list of 11 instances when you should not buy a home.
1. You have other life priorities.
Travel, having kids early, or just not being tied down might be your focus for the time-being.
Some people say apartments are a good choice for people who are always on the go, either due to their work or because they just like to travel. But what about body corporate fees? – the monthly payment for services that you might be hardly using. That could be a huge waste of money if you're rarely at home – shorter term accommodation, housesitting, or flatting are probably better ideas.
2. You have no down payment.
If you haven’t saved up enough, you’re not ready to buy. Staying with family or flatting with others could be the simplest way to cut expenses and save more of your pay cheque.
3. Everyone else is doing it.
This is never a good reason to do anything! When making any decision, it is a common impulse to look and see what others are doing. Nevertheless, it is often unclear whether the path that everyone else may be following is good for you as well. After all, sometimes following the crowd has merit — at other times, it is simply peer pressure blinding us.
Always do what’s right for you and your specific situation.
4. Poor credit rating, or an inability to service the mortgage requested.
A poor rating score can make it difficult to secure a mortgage. If this is the case, it is better to try and improve your rating by reconsidering your finances and the management of it.
5. You have high debts or other bills.
If you must borrow to live your current lifestyle, can you really afford another large debt?
You probably cannot afford to add a mortgage payment to your monthly debt if your other bills eat up 50% of your gross income every month. Lender guidelines have changed over recent years, so your cashflow management is king when it comes to obtaining a mortgage approval – the banks will “stress test” the numbers to ensure you can survive interest rates much higher than current levels too!
6. You’re unsure about long-term commitment.
When you have 30 years of debt payments (i.e. – a mortgage), you can’t pack up and leave for that trip-of-a-lifetime to Thailand, presuming that Covid subsides sometime soon.
If your life plans are still ‘up the air’ renting is probably the best until you’ve figured out where you want to be, and what you want to achieve in life.
7. You have other investment priorities.
Owning a home might leave you vulnerable to unpredictable expenses and distractions that eat away at what's left to invest. This might not matter for most people, but if you’re a small business owner who’s investing all you can in your own business, then the last thing you want is unexpected house maintenance expenses, or the need to tie up large amounts of funds for a down payment – a steady rent payment is a much wiser idea.
This might apply to education too. Most medical students should focus on meeting course costs so they can obtain a medical doctorate, not a down payment on a home. Of course, after graduating the medical doctor should soon be earning enough to afford a few homes!
8. Little or no job security.
Now isn't a good time to buy a home if you have a reason to believe that your job might be in jeopardy, which can lead to missed mortgage payments, and at worst, foreclosure.
9. Moving around most years.
Buying a home is a long-term commitment. You might find that it's impossible to sell your new home in a relatively short period of time without absorbing a big loss if you're the type who loves the excitement of new digs and you want to frequently change your environment. That said, buying a property that can become a rental might be a great idea.
10. You’re just not interested.
Does homeownership align with what is important to you or are you considering buying to meet some social expectation? There is nothing shameful about not owning a home – the ideals of the 1950s are dead.
Financial success is as much about making smart financial decisions as it is about tuning in to what's important to you. Homeownership is not the ultimate, and there are many ways to build significant sums of wealth. If you love non-property investing and are committed to it, then keep going your own way.
11. You’re in an unstable relationship.
Single people buy homes, but a homebuying purchase is often made with a partner or spouse. What will you do if you're relying on your partner's income and support to make mortgage payments and that person leaves your life? Worse, NZ’s relationship property laws mean they could be entitled to take half the house with them!
The bottom line: when not to buy a home
How did you go? If you’ve been thinking about buying a home and none of these points apply to you, then get in touch by leaving your details below to see the free-to-you assistance we offer first home buyers. If you have ticked yes to more than one of the below, then right now might not be the time to jump into home ownership.
You have other life priorities.
You have no down payment.
Everyone else is doing it.
Poor credit, or an inability to obtain a mortgage for some other reason.