Whether it’s your mortgage, your property taxes, utilities, maintenance or some other expense associated with home ownership, if you find yourself spending too much on your home to the extent where you have limited – or no – spending income for other needs, then you might be what is often considered “house poor.”
While some people may become house poor for reasons outside of their control (i.e. layoffs, pay cuts, death of a spouse, etc.), for many others becoming house poor is self-inflicted – and it all starts with not being smart with the home you choose when you’re in the home-buying process. Read our previous blog post Are You Financially Ready to Buy a Home?
So how do you avoid becoming house poor? Here’s a look:
- Know the costs of ownership:
Home ownership is about more than just your mortgage, as there are taxes, utilities, insurance and upkeep you’ll have to account for. Make sure that property taxes and homeowner’s insurance are rolled into your mortgage to give you a better idea of what you can comfortably afford. In general, the experts say your mortgage payment shouldn’t be greater than about one-third of your monthly income.
- Check your credit:
If your credit score isn’t in good shape, your mortgage interest rates can raise your monthly home payments, leaving you less income to spend on other things. So before you buy, work to get your credit score in shape so you can qualify for low interest rates.
- Don’t overdo it:
Mortgage pre-approvals aren’t the best indicator of what you can afford. Keep in mind that mortgage companies a) want you to spend more on a home so they can make more money off of you, and b) base pre-approvals on gross income. So don’t shoot for the max of what you’ve been pre-approved for. Be smart.
- Budget for maintenance:
There’s required maintenance and then there’s unexpected maintenance and repairs. Be sure that you’ve budgeted for both. We’d even recommend building up a savings account strictly for repairs and updates.
- Don’t forget about extras:
Homeowner’s association, garbage and recycling fees, snowplow fees and special assessments are all things that can dip into your disposable income, so make sure you’re aware of any of these extras before making an offer.
For more information on proper budgeting to avoid becoming house poor, contact Realtor Greg Dewar at our Cambridge, Ontario office.Posted by Greg Dewar on