There’s no need to jump into homeownership if renting makes the most financial sense for you.
Many people are eager to buy a home because they can start building equity, benefit from increases in property values, and make the place their own.
But while becoming a homeowner can have financial benefits under the right circumstances, it could also hurt your finances if you buy before you’re actually fully prepared to do so.
In fact, if any of these four signs apply to you, then you’d likely be better off renting for a little bit longer rather than purchasing a home.
1. You aren’t sure you’ll be staying put for a few years
When you buy and sell a home, you have to pay transfer taxes, title insurance fees, costs for an attorney or escrow agency to close on the loan, and a host of other miscellaneous expenses. If you’re selling a home, you also have to pay commission to a buyer’s and seller’s real estate agent in most cases.
These closing costs can be very expensive. If you stay in your home for several years, you can usually make back the transaction costs and break even on the home purchase because ideally your property will go up in value. But if you have to sell a short time after you’ve bought the property, you could lose a lot of money on the transaction costs associated with the sale.
If you’re lucky enough to make a profit on the sale of your home, you could also end up paying more taxes if you didn’t keep the home for at least two years before selling it. You can avoid paying capital gains taxes on up to $250,000 (as a single filer) or $500,000 (as a married joint filer) but you must use the home as your main residence for at least two of the previous five years before selling it.
If you are planning to move in less than two years, you may want to hold off on buying since you could end up either losing money or paying taxes on gains that you could otherwise avoid.
2. You haven’t been with your job for long
When you apply for a mortgage, lenders look at your debt-to-income ratio. That’s the amount of debt you have relative to the amount of income you have.
You may not necessarily get credit for every dollar of income, though. Typically, if you haven’t made a steady income with the same employer or …….