If you’ve been following the personal financial guidance for a while, you surely understand that buying a home is a smart investment. In some cases, though, it’s not the case.
They buy a house because they believe this is an investment, but this isn’t always true. When a person’s monthly income is spent mostly on paying off their mortgage, they are said to have been house poor. This is due to the fact that if people don’t remain cautious, they end up finding themselves being “house poor.”
This one decision does have the potential to make or break your financial situation. So let’s look at how to prevent becoming house poor and how to get out of it if you already are.
Ways to avoid House poor
If you’re currently are house poor or have been driven into it due to a series of terrible situations, you may certainly seek ways to make your monthly repayments more affordable. Listed below are a few ideas:
- 125 rule
The 125 percent rule ensures that you have sufficient money to meet all of the other costs of buying a home beside the loan and down payment.
Using the 125 Percent Rule is the best way to avoid being house poor. If your monthly mortgage payment is $2,000, make sure you can afford $2,500 ($2,000 multiplied by 125 percent). If that’s a stretch, any more maintenance or care will decrease your cost.
- Avoid being house poor by making a larger down payment
A larger down payment not only increases your home equity but also reduces your minimum repayments. Putting more money deposit on a house can also lead to significant savings on the mortgage. Huge sums can be saved throughout the life of the loan if you do this. Even though certain mortgages allow for shorter down payments, consider it a goal to put down 20% of the buying price of your home to avoid being house poor.
- Pay other debt before buying a House
Paying off debt while purchasing a home is just another great way to avoid becoming house poor. Debt seems costly, and you could be storing that money for unexpected costs or future home renovations. As a result, create a debt-reduction strategy and ensure that you will be financially prepared to become a homeowner.
- Have emergency funds set aside
If your house is in poor condition, a hard lesson to learn as a new homeowner is that you will not be able to finance repairs. If you’ve spent the whole money, you’ll go into debt to fix it.
As a result, set aside separate emergency savings only for housing costs. This way, if you’re faced with a major repair which your insurance won’t cover, you’ll be protected.
- Online, You can sell items you own but don’t need
If you require urgent funds, sell items that have been sitting dormant in your home on online selling sites. It can provide the additional funds necessary to meet your monthly expenses.
Indeed, you can start a side hustle selling used stuff online, with the money raised toward both building your side business and paying off the home.
The final line is that being homeless is preventable. Simply because a lender is willing to lend you a large sum of money does not mean you should accept it. If you find yourself within that situation, keep in mind that you do have the option to find a property that is less expensive and allows you to easily pay your mortgage payment.