People get excited about buying a new house for a lot of different reasons. For those buying their first home, the reason for excitement is obvious. For others who buy for “investment purposes” the thought of future returns can generate excitement about future prospects. Some buy a new home because their family has grown in size and they need additional space. Others buy a new home after a windfall and enjoy the excitement of a more expensive residence.

However, while buying a new home is exciting, there are also good reasons some people should NOT buy a new home. You hear it said that buying a new home is a person’s most significant financial decision. It certainly can be. A new home is usually acquired with a mortgage loan which must be repaid over an extended period of time (whether it’s convenient or not). Also, a new home will have some significant closing costs which include everything from a downpayment to prepaid homeowners insurance.

So how does one know if buying a new home might be a bad idea? It’s not always obvious (especially if emotions are high), but here are three reasons buying a new home might be a bad idea.

1. Buying a new home might be a bad idea if you can only do it with exotic financing your parents haven’t heard of before. If you can only purchase your home by squeeking into it with an interest only mortgage, it’s probably not a good idea. Your monthly payment will increase — perhaps by devastating amounts.

There are other odd-ball financing options that you not use without a clear-minded consideration of your future. Interest rates are low on conventional, fixed-rate mortgages (FRM) which allow you to know what your monthly payment will be decades into the future. Adjustable Rate Mortgages (ARMs) are unpredictable except for one thing: they will increase your monthly payment in the future.

2. Buying a new home may not be a good idea if you know you will be moving soon. You’ll lose all those closing costs that you pay to buy a new home.

3. Many believe buying a new home today in some “hot” real estate markets is a bad idea. In markets where the real estate prices have risen irrationally in recent years and months, many experts expect a “correction”, or a return to more reasonable home prices. If this happens, those who have bought a new home at a frothy price will regret it when home prices return to normal levels. In fact, after a correction in home prices, some recent home buyers will owe more for their new home than they could recoup by selling it. Finance guys call this “getting upside down” and it’s not a good thing.

Remember, it’s easy to get excited about buying a new home, but emotions are transient. Buying a new home is an important decision which should be based upon clear-headed thinking about your current and future financial situation — and not raw emotion. Look out for yourself!