Whether you are looking for your very first home, or you’re looking to sell your current one and find something new, the house hunting and buying experience is one that is filled with excitement, joy, pitfalls, and challenges. One of the biggest challenges facing home buyers is to ensure they find a home that is within their budget and doesn’t leave them house poor. So how can you make sure you don’t end up in this unfortunate situation? Let’s take a closer look.
What Does House Poor Mean?
You’ve probably heard the term “house poor” thrown around before, and it may have left you wondering what it actually means. House poor means you are able to pay for your mortgage and utilities and necessities each month, but you have no extra money to spend, save, or to use on emergencies.
In reality, experts suggest that your mortgage payment should be 25-30% of your take home pay, but there are a large number of people who are reaching far above this. This reach can put strain on your finances in other areas.
Figure Out What You Can Actually Afford
Usually the first step in the house hunting process is to go to your bank or a mortgage lender and get pre-approved for a mortgage. This will give you an amount you can spend on the home and the interest rate you’ll be paying. Here’s where some homeowners make a mistake. Just because you are pre-approved for a certain amount, doesn’t mean it’s wise to take the full amount. If you do, you could find yourself house poor.
Instead it’s a good idea for you to build a budget and figure out what sort of mortgage payment you would be comfortable with. This will help you figure out the purchase price range you should be looking into.
The house sale calculator tool from Roost Real Estate will allow you will allow you to plug in the annual interest rate, the percentage you plan to put down on the home, the sale price of the home, and the length of the mortgage. Once you’ve got all the numbers plugged in, it will show you what the monthly mortgage payment will be. This gives you a very clear and quick picture of what list price you will be comfortable with.
Take into Account the Variables
As you try to figure out what mortgage payment you’d be comfortable with, it’s also important to factor in the variables that happen in life. This is things such as losing your job, being unable to work for a set period of time, your consumer debt, the ability to grow your savings account, a budget for maintenance and repairs of the home, and even increases to the rate you pay for utilities. It’s all about giving yourself that cushion that will help to keep the house affordable and being prepared for the unexpected in life.