Strategies to Avoid Being House Poor & Enjoy Home Ownership
1. Know how much house you can comfortably afford.
Before shopping for a home, it's important to figure out how much house you can comfortably afford, which may be a different number from the maximum mortgage you can get approved for depending on factors such as your credit score and debt-to-income ratio. Even if you can qualify for a higher mortgage loan, this doesn’t mean you have to accept the full amount. Experts advise buying less house than you can afford but still meets your needs. Likewise, remember to never go beyond your price range and stick to your home buying budget.
2. Do your homework before buying.
Before plunging into homeownership, educate yourself about the various expenses associated with owning a house. Aside from calculating the down payment, closing costs, and your expected monthly mortgage payment, don't forget to also consider these costs:
· Utilities (water, gas, electric, trash, etc.)
· HOA dues
· Property taxes
· Maintenance, including gardening, pool service, snow removal, house cleaning, tree removal service, etc.
· Any potential repairs, like a leaky roof or water damage after a storm
Especially if you will be transitioning from being a renter to a homeowner, remember that there won’t be a landlord who will cover many of these costs.
3. Plan for repairs and maintenance.
Even if you purchase a house in very good condition, it will inevitably need big-ticket repairs over the years. A home warranty may be helpful to cover any unexpected breakdowns, but you probably can only rely on it during the first year or two. Moreso, if you've got your eyes on a fixer-upper. You’d need to get estimates and bids to plan ahead, plus prepare an extra budget for unforeseen expenses.
This is another reason to never skip a home inspection. Some buyers in crazy markets have been waiving property inspections to be able to sweeten their offer and shorten their closing date. However, a home inspection is highly recommended since it will help you discover all the current problems and potential issues before you sign on the dotted line. The seller might get the issues fixed before closing, or you will receive a price reduction to cover those repairs yourself. But if not, at least you have an estimate for repair expenses and can determine whether they fit comfortably in to your budget. For example, you can figure out if the roof is nearing its lifespan, or maybe the cracks in the foundation are early signs of structural damage.
4. Make a larger down payment if you can.
Although many loans and homebuyer assistance programs allow you to make smaller down payments, waiting a bit and saving more before buying a house can also help avoid becoming house poor. By making a larger down payment, you'll be reducing the amount you need to borrow, therefore lowering your monthly payment. This also makes you considered a less risky loan, which results in a lower interest rate.
Moreover, there’s no need to pay for private mortgage insurance, which lenders use to protect themselves in the event you default on the loan if you can put 20 percent down. This can save you thousands of dollars over the life of the loan. You just need to make sure that this option doesn’t deplete your savings.
5. Build a housing emergency fund.
Aside from your savings, it's a good idea to put aside money every month strictly for housing expenses. Your housing emergency fund will provide you with a cushion to cover unexpected circumstances; for instance, if you lose your job or if something breaks, that leaves you with a hefty home repair bill that warranties or insurance won’t cover.
Bottom line
Despite occasional, home ownership is better that other options like renting. Even though buying and maintaining a home can be expensive at times for many, homeownership is still the right decision over the long term, and is still worth it in the long run. Remember to do your research before stepping into the frenzied real estate market. By understanding the pros and cons of homeownership by hiring a local and experienced real estate agent to help you get the best deal, you can enjoy the long-term benefits of owning a home and be proud to call yourself a homeowner.
