8 Times You Need to Walk Away From Your Dream Home

You think you've found the perfect house. But before you plunge into homeownership, you need to watch out for any warning signs this sale isn't meant to be. Ask yourself whether any of these things apply to you. If so, buying the home of your dreams may just have to wait.

1. You can't afford 20 percent down

The house may have everything you are looking for, but you need to make sure that the sale price isn't beyond your means. Ideally, you want to make a down payment of at least 20 percent. This may be a substantial amount of money, but without that down payment, your lender will likely ask you to pay for private mortgage insurance — which can add hundreds of dollars a year to your homeownership costs.

Moreover, the more you can put down up front, the smaller your monthly mortgage payments will be. If you are in the market for a home but can't hit that 20 percent mark, consider holding off on buying until you have a larger sum saved. (See also: 4 Easy Ways to Start Saving for a Down Payment on a Home)

2. Your mortgage payments would restrict your ability to save

Even if you have the ability to put 20 percent down on the house, you may find that the monthly mortgage payments are higher than you can reasonably afford. The U.S. government recommends spending no more than 30 percent of your gross monthly income on housing. That means if you earn $3,000 per month before taxes, you shouldn't spend more than $900 per month on your mortgage.

You may get approved for a loan much bigger than you expected, but don't use this as an excuse to buy more house than you can afford. If your payments are too high, you will find it harder to live comfortably or save money for anything besides housing costs. If you have to go into additional debt in order to make house payments, then your "dream home" could become more of a financial nightmare. (See also: How to Make Ends Meet When You're House Poor)

3. You didn't get a favorable interest rate

There are two key things that impact how much you'll end up paying for a house: the sale price, and the interest rate on the mortgage loan. Even if the sale price is within your predetermined budget, you may find your monthly payments to be onerous if the interest rate is too high. A modest difference in interest rate can mean thousands of dollars in extra costs over the lifetime of a loan.

Your past financial history, debt load, and credit score impacts the interest rate that banks are willing to offer. The worse your credit, the higher the rate will be. If your credit score is low, you may be better off in the long run financially if you take time to pay off debt and make yourself more attractive to lenders. (See also: 5 Ways to Improve Your Credit Score Fast)

4. Your income situation may change for the worse

You may have found your dream home, but your ability to pay for that house may be based on income that's no longer a sure thing. Have you recently lost your job, or are you on the verge of a layoff? Were you counting on income from investments that have not performed as well as expected?

If your income situation is unfavorable, consider waiting to buy a home. You don't want to exacerbate a difficult financial situation by taking on more expense than you can handle at that moment. (See also: Make These 5 Money Moves Before Applying for a Mortgage)

5. It's a money pit

You're not opposed to a fixer-upper, but this house has more needed repairs than you bargained for. You also learned that it's horribly inefficient when it comes to heating and cooling. On top of that, there are sizable homeowners association and community fees that you hadn't taken into account. All of this adds up to a house that busts through your budget, and it may be a good idea to walk away. (See also: 5 Signs the House You Want to Buy Is a Money Pit)

6. There are signs that housing prices may drop

It's hard to predict where housing prices will go, but if the market is inflated, you may be better off waiting to see if prices come down. There are countless people who purchased homes during the housing bubble around 2005, only to see home prices drop precipitously. Many of these homeowners ended up underwater on their loans, and some even ended up losing their homes altogether.

If you feel like the housing market is overheated and you are willing to be patient, you may save money on the purchase price if you wait for prices to drop. One big caveat to this is that it's also important to pay attention to interest rates. If interest rates are on the rise, it may be better to buy sooner rather than later.

7. The seller wants you to waive an inspection

During the housing boom more than a decade ago, competition for homes was so fierce that sellers often viewed a request for an inspection as a deal breaker. No matter how desperate you may be to land that perfect home, waiving an inspection is a risky proposition that could backfire on you. Without an inspection, you have no way of knowing if a home will be in dire need of repairs, now or down the road. (See also: Thinking of Skipping the Home Inspection? Here's What It Will Cost You)

8. The seller wants you to waive a title search

A search of a home's title is a crucial aspect of the homebuying process. This is where a buyer may uncover things about the history of the home, including when it was built, who has owned it, and whether there are any tax liens. It's extraordinarily risky to waive this contingency, so if a seller insists upon it, consider it a red flag and run. (See also: Yes, You Need Home Title Insurance — Here's Why)

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