Avoid Being House Poor – Part 1
Certain factors should be considered, and others not so much, when buying a home and looking to avoid winding up house poor. In this first section, we’ll take a look at the wrong factors people consider most when looking for a new home that create a house poor situation.
The Lender’s Pricing Limit: This is a factor many first-time home buyers get simply punch drunk over when looking for their first home. Often a lender will approve them for a purchase price far in excess of what they comfortably can afford. Spreadsheets and formulas simply cannot accurately factor in all the real, unpredictable elements that describe your potential financial picture. And this loan is a commitment that typically ends up spanning 30 years of your life.
Once you’re pre-qualified for a home loan, sit down and take a good sober look at what kind of payments you can afford. Shooting your wad on a new home purchase is the quickest way to wind up house poor in today’s market.
Maxing Out at Their Minimum: Some home buyers will factor minimum mortgage payments into their current financial picture and figure if all numbers add up, they’re golden. Not so! If making minimum payments maxes out your budget, stop right there and think. If one thing goes wrong, one unexpected expense, one emergency financial matter hits you at your current financial state, you’re left deciding if you’ll be making a mortgage payment or buying a bag a groceries. Not a situation you want to be in.
Don’t compromise your financial picture just to make a minimum payment. If their minimum is the maximum you can afford, perhaps it’s time to lower the home price for your search.
Emotion: Never, ever buy a home based solely on emotion. When you do, you’re opening yourself up for a world of hurt. Always do the numbers. And remember: “If the price doesn’t fit, this home you must quit.”
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