Avoid Being House Poor – Part 2
Now we come to the factors you should rely on when investing in your first home. Remember that this is indeed an investment and probably the most important one you’ll ever make. The decision here should be based on some sound reasoning. These tips can be a useful guide when considering that investment choice:
What You Can Truly Afford Right Now:
It’s simple. Figure out what you can afford and try it out for a few months. A good rule of thumb is whatever your estimated monthly mortgage payment is, double it. Then test it. Typical home searches take upwards of three months. Use those months to test out your theory of what’s affordable and what’s not.
Include your current monthly housing costs in your allocation for the “fantasy” mortgage payment and sock away the rest. See where everything falls in those three months and from there you can create a budget you can live with.
If you can afford double the minimum monthly payments. It’s likely you can comfortably afford this mortgage.
Remember also that every life has unexpected events that can be a drag on their finances. And if you want to avoid being house poor you have to consider budgeting for them. Allowing enough room in your budget for savings or a slush fund can help when the basement floods or when you have a new child on the way or even if your business dips in earnings. Not allowing for a cushion, comfortable cushion at that, can be like playing Russian Roulette. Don’t play Russian Roulette.
Purchasing a new home is always an exciting process. Don’t let that excitement lead you down the primrose path.
Take a sober look at what you can afford and get excited about not being house poor.
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