Buying a house can be a great financial move. Monthly mortgage payments benefit you long-term, instead of monthly rent that goes to your landlord and you never see again. However, when looking for a house to buy, you need to be sure you understand the full scope of your future monthly payments so that you do not end up being “house poor.”
What is “House Poor”?
Essentially, when someone is “house poor,” most of their income has to be spent on expenses related to the house. First-time home buyers may not understand all of the costs that are associated with homeownership – the mortgage payment is just a portion of it. Homeowner’s insurance, maintenance, and property taxes all need to be considered on top of the mortgage. If someone does not have enough money left for other necessities and some fun after making the house payments each month, they can be considered house poor.
Budget for your House
Experts recommend that no more than 30% of your monthly income be spent on housing-related expenses. This way, you have enough money left each month for food, gas, and your other bills and priorities. It is helpful to create a budget spreadsheet to visually understand the amount of money that you receive each month, the amounts that you spend on both necessities and fun, and how much money you will be able to save. Every person’s situation is different; use your budget spreadsheet to figure out what will work for you.
Remember to Save
Planning for future issues is necessary. Even if your house is in excellent shape, there will be maintenance and occasionally some expensive repairs that you need to pay for. Having a safety net to turn when unexpected repairs come up will be a life-saver. While housing professionals recommend that you have at least 1% of your home’s value in savings at any point, any amount that you can put away to help with future maintenance will help. Again, each family’s situation is different, so you know that you are being smart and planning ahead, whether you are putting away $40 or $400 each month.
Make as Big a Down Payment as You Can
The more money you put down upfront, the lower your monthly mortgage payment will be. Figuring out how big of a down payment to make is a fine line–you want to bring the monthly payments down as much as you can, but you also do not want to end up with nothing in your savings account.
Don’t Go Big (At First)
The odds are that your first home will not be your forever home – instead, view it as a stepping stone. Find a starter home that suits your needs, but it doesn’t need to have all the bells and whistles that you would like. This first home is an investment to build equity. In the future, you can sell the home. Better yet, if you love the location and have established community roots, you can renovate your home to suit your needs as you grow. You can choose to upgrade your kitchen, add a new bedroom, or remodel your outdoor areas to add to your living space. In some cases, homeowners can add an addition to their home to better reflect their current life situation.
Starting with a modest home and renovating – when you have the money saved up – can help you to avoid being house poor.
West Coast Design Build Florida is a professional renovation and remodeling company based in Sarasota, Florida. If you are considering an upgrade to your property, call us today or check out our renovation projects online.
