How to avoid overbuying and plan for the full cost of homeownership
Did you know that across the United States, an estimated 20 million people — or about 25% of homeowners — are "house poor"?
If you aren't familiar with the phrase, being house poor is when your housing and related costs are so high that you don't have enough money leftover every month for life's other expenses. It means that you're strapped for cash after you've paid the mortgage, property tax, insurance, homeowners' association dues and maintenance costs for your home.
Typically, people who are house poor (or housing cost burdened) are paying more than 30% of their monthly income on housing. If your income is $5,000 per month and you're paying more than $1,500 per month in housing and related costs, you're considered house poor.
How do you avoid being house poor?
Avoiding this stressful situation starts long before you buy a house. When you look at your budget and the cost of living in your desired neighborhood, talk to a mortgage professional and make sure you do research on how much you'll be paying in taxes, insurance, maintenance and HOA fees if those apply.
Consider the interest rate you're getting on your new mortgage, and find out what you can do to lower it. Your mortgage lender may approve you for a monthly payment amount that seems manageable until you add in all those other costs. (And don't forget that you'll want to be able to save money for when you need a new dishwasher or a new roof.)
When you add up all those costs, do they still fit into your monthly budget? (A CommonWealth One certified financial professional can help you with figuring this out, so don't hesitate to give us a call, schedule a consultation, message us through online banking or stop by a branch!)
We have a few important, useful (and free) webinars coming up that can help you avoid being house poor. Be sure to join us on Monday, September 15 at 2 p.m. (ET) or Wednesday, September 17 at noon (ET) for "8 Strategies to Save for a Down Payment." The bigger your down payment is, the less you'll pay in that monthly mortgage! Then, join us on Wednesday, October 8 at 2 p.m. (ET) for "Budgeting, Savings and Credit for Homeownership." You can sign up to attend any of these events through cofcu.org/events.
What if you're already house poor?
Even with good planning, you may end up being house poor. Over the years, the amount you pay in property taxes and insurance may increase. What was an affordable payment 10 years ago can creep up on you and become burdensome.
If you're feeling the crunch, here are a few things you can do to fix the situation:
Look at your overall house spending. Are you paying too much for things like Internet service, utilities or landscaping? It's worthwhile to seek out lower costs by switching Internet service providers, making your home more energy efficient, adjusting your thermostat and using less water. Your utility companies may be able to put you on a budget billing plan, or maybe you can do some of that landscaping yourself (or hire a neighborhood kid to do it instead of a professional service).
You might also consider refinancing your mortgage. Lower rates may be coming, and you may be able to refinance your home to take advantage of that. You can also find out if there are ways to remove your primary mortgage insurance (PMI), or call your city or county to see if you qualify for any tax relief programs.
Increase your income. There's a reason side-hustles and part-time jobs are on the increase. Consider ways you can boost your income by asking for a raise at work, or taking on a side job, or selling things you don't need. Even if it's just a few hundred dollars per month, increasing your income can help reduce the pressure.
We wish you the best on your home search, refinancing and more this fall! Remember to start your mortgage or refinancing search with CommonWealth One, where we're with you, for life.
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