The term “house poor” refers to someone who spends so much on their home that they struggle with all their other expenses. While a home is usually a good investment because it allows you to build equity, you’ll also have to keep an eye on your finances.
By carefully selecting an affordable home and by taking into account all additional finances, you can live a more comfortable life.
Set Your Own Budget
When you get pre-approved for a mortgage, the bank gives you a better understanding of how much they are willing to loan you for a home. They will get an accurate look at your financial picture and tell you how much money they’ll loan and what interest rate you’re likely to pay. However, they aren’t taking into account your lifestyle expenses such as hobbies, vacations & shopping. If you are working hard to pay off your debt or like taking elaborate vacations, you might not be able to comfortably afford as much as the bank says you can while still enjoying the things you love.
Understand Your Mortgage Payment
Paying back the principal balance on your mortgage is only a part of your total monthly payment. Other payments will also include homeowners’ insurance, property taxes, and if the property has condo fees. These can add a couple of hundred dollars on top of the loan payment. If you’re not factoring them into the equation, you may end up agreeing to a mortgage that’s more than you can comfortably afford.
Give Yourself Wiggle Room
The bank will give you a maximum amount they think you can afford each month and as we’ve already mentioned, it’s smart for you to make your own calculations about what’s affordable based on your lifestyle. Think twice before you take on a mortgage for the maximum amount you can afford. Doing this can stretch your budget pretty thin, and you might not have a lot of extra money for the things you enjoy doing. If you choose a house that’s $100 less than your maximum, you’ll have more freedom to spend on extras or top up your savings each month.
Don’t Buy a Money Pit
Resale homes can be affordable, but unexpected costs can occur due to the wear and tear or age. If you’re not really the DIY type, a home that’s not in good condition can cost you thousands of dollars you weren’t expecting to spend. In previously-owned homes, things like the appliances and architectural components have more mileage on them and could be in need of replacement.
With a brand new home, you get a new energy-efficient water heater, dishwasher, roof, doors, windows, etc. Appliances in a new house are covered by manufacturer warranties, lasting anywhere from one to 25 years. With these warranties comes peace of mind. You know as a buyer that if something goes awry, you can contact your builder or manufacturer to get the repair done.
Avoid Adding Too Many Extras
If you do choose to build a home, you often have opportunities to include upgrades. Many upgrades only add $10 or $20 dollars a month to your mortgage payment, so it’s easy to say yes to the things you want. If you choose too many upgrades, though, your monthly payment is suddenly $100 or $200 more than you thought it was going to be. Make sure your builder knows your budget and is willing to help you stick to it.
Most people think that once they buy their own home, they’re leaving their roommate days behind. But this doesn’t have to be the case! Many condo and townhome floor plans are designed perfectly for roommates. Our Abbey floor plan, for example, offers two master suites both with their own private ensuites. With a roommate, you can get extra help paying the mortgage while still building up some equity. These rent payments can either reduce your portion of the monthly payment or they can go toward the principal balance so you’re building more equity.
Buying a home is a big financial commitment, so it’s not something you should get into without a lot of serious consideration. Think carefully about how much you can afford, and commit to buying a home within that price range. If you’re considering purchasing a new home, connect with us today! We’d love to help you find your dream home.