Why You Can't Afford Your Dream Home

Does it seem like everyone around you is buying a home and you can’t figure out how? Or that buying a home is the next rational step in your life, but there is something (namely, money) holding you back? You are not alone. There are plenty of reasons why you may not be able to afford buying a home and it isn’t necessarily a bad thing.

1. Renting Is More Manageable

People tend to assume that buying a home is always a guaranteed moneymaker and thus more financially prudent than renting. However, the decision of rent vs. buy is not that simple. The appeal of renting — like lack of maintenance responsibility and expenses, fixed monthly cost, no taxes, lower insurance premiums, and greater flexibility — may be what is keeping you from buying your dream home. It’s a good idea to weigh the options carefully before deciding what is right for you and your family.

2. Too Many Expenses

Paying for a home is expensive. It is likely the single largest financial decision you will make in your life. Even if it seems like covering the down payment is possible, it’s important to calculate the monthly mortgage and see if that is realistic. And do not forget about closing costs. These are required at the home purchase (though some lenders allow you to roll the closing costs into the mortgage, this means you pay interest on that additional amount) and often total up to 5% of the home’s price. Whether due to the recession, high student loan balances or investment performance, you might not have all the money you need upfront to cover a home purchase. If you just can’t stomach all these costs, you might not be in the right financial or emotional place to buy a home.

3. Neighborhood Inflation

It turns out that a lot of homeowners want to live in a neighborhood with a good school system, low crime rate, available transportation, necessity access and cultural attractions. Homes in these neighborhoods are going to be more costly, and if you are unwilling to compromise on location, you just may not be able to afford a house … yet. In this case, you may choose to wait until you’ve saved up enough money for what you really want.

4. Out of Balance

It’s not you, it’s the market. The number of households in America is increasing, availability is low and the prices of homes are rising, yet the number of homeowners continues to decrease. This is especially true in certain locations. As a result of the housing crisis and recession, many potential homeowners are choosing to rent because they cannot afford a home or do not trust real estate as a good investment. You can see how much home you can afford using this calculator. A big factor in determining home affordability is your credit, so make sure you know where you stand. You can get copies of your free annual credit reports at AnnualCreditReport.com and you can check two of your credit scores for free on Credit.com.

The most important thing to remember is that if you cannot afford a home, it’s not a good idea to buy one. This will usually lead to more financial stress down the road.

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