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How To Become House Poor - A Guide to Understand How Much You Can Afford

Posted by  on Apr 16, 2009
 
If you're new to the housing market, it can be easy to get pulled into the allure of owning your own home. After living in apartments and condominiums for years, you might feel that you are ready for the purchase of a home and all the benefits that come along with it. But with those benefits to your credit rating and your personal wealth, there are just as many responsibilities to take care of, as well. Here are the ways to get the home of your dreams, as well as, the home you can afford.

First of all, you will want to realize that buying a home is the single most important purchase that you will make in your life. For the next ten to forty years you may be paying for this piece of property, so it's to your advantage to think the venture over carefully. It can help for you to begin your assessment of what you can afford by looking at homes that you would like to buy — well before you begin the buying process. This will give you an idea of what you will be paying for the certain houses that you would like to live in.

Once you have an idea of what you might be paying for a home, you need to start looking at your personal finances. Look at what you are paying right now for your rental or condo. Take this number and write it down on a piece of paper. Ideally, you should be able to afford your current housing without any problem. Some financial experts have noted that you should only be paying about 25% of your total income towards your housing costs — and many have stretched themselves thin by going far beyond that.

Now, you will need to write down the money that you have each month to pay for not only your mortgage, but also your property taxes, home owners insurance, maintenance of the property, utilities, water, sewage, trash, etc. This will give you a good idea as to what you will need to have each month in order to keep your mortgage in good standing and your home in good repair — it is an investment, after all.

When you look at this number, you need to also look at the income you are making right now to see if you could afford the house you want on what you make right now. If you cannot, you will constantly be living 'house poor.' You will be barely scraping by with your payments to keep up the house. A good experiment is to try putting aside that money each month right now to see just how different your life will need to be in order to make those kinds of payments. If you find that you cannot live the life you want to live, maybe you should reconsider your housing dreams for the moment.

Avoiding the problem of being “house poor” is easy when you do your homework ahead of time. You need to be able to easily afford your housing payments with what you are making as well as have extra money set aside in case you lose your job for some reason. If you fall behind on your mortgage payments, you can lose your home — and you don't want to get into that situation because you spent too much on a house.

What you might realize in your research is that you can still buy a home right now, but it might not be the home of your dreams. In some cases, this is okay for many new homeowners. And for you, this might be a good idea, too. By taking on a smaller financial responsibility, you will learn what you need to do to keep up a house and eventually be able to afford something bigger when your income grows.

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