“House poor” is when an individual or family spends a large portion of their income on homeownership expenses—so much so that there is little money left for other necessities.
As a first-time homebuyer, being house poor is one of the things you want to avoid at all costs. But with the entire home buying process generally being expensive, how can you make sure you buy a home you can truly afford?
Here are some tips to keep in mind.
Save for a larger down payment
Saving up for a bigger down payment can help you avoid being house poor in two ways. First, it reduces the amount you need to borrow, which means lower monthly mortgage payments.
Second, if you can put down 20 percent or more, you can avoid paying for private mortgage insurance. This can save you hundreds of dollars each month.
Consider all costs of homeownership
When budgeting for a house, remember that the mortgage payment is not the only cost. You will also need to pay for other things, such as:
- Property taxes
- Homeowners insurance
- Utilities
- Maintenance and repairs
Do not forget the costs of buying your home. These can include but are not limited to:
- Closing costs
- Inspection fees
- Appraisal fees
- Notary fees
- Moving expenses
There can be a lot of hidden costs during the buying process, especially during closing. It is highly recommended to consult a real estate lawyer who can help you understand all the expenses involved so you can avoid surprises along the way.
Understand your budget
An obvious tip would be to not buy more house than you can afford, but what does that mean exactly?
A good rule of thumb is to spend no more than 28 percent of your monthly income on housing costs. Based on this figure, you can now set a maximum budget.
Get preapproved for a mortgage
Before you start house hunting, get preapproved for a mortgage. This process will give you a clear idea of how much you can borrow based on your income, debts and credit score.
Look for homes below your budget
Even if you are approved for a certain amount, consider looking for homes that cost less than that. Doing so can give you some financial wiggle room for unexpected expenses or changes in your income.
Buying a house is a big goal, but it should not come at the expense of all your other financial objectives. By applying these strategies, you can ensure you have money for other important things in your life.