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
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.)
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
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.
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.