3 Things First-Time Homebuyers Can Do to Avoid Becoming House Poor
Posted on: 29 October 2015
Buying a house for the first time is exciting. Many people look forward to the day when they can call themselves homeowners. However, in the excitement of buying a home they may make decisions that could hurt them in the long run. If you are not careful you can easily get into a house that is more than what you can really afford. You could end up putting all of your money into your house and essentially become house poor. Here are a couple things you should do to avoid buying a house you can't fully afford.
1. Purchase the Home Based Off Your Current Income
Everyone has hope that their situation will only get better. You might be in an encouraging job, you may have been promised a promotion, or you might be in the process of starting your own business. Naturally you have hope that things will improve and that your finances will keep improving. However, when buying a house you should assume the worst, not the best.
When you are deciding how much you want to spend on your house, base the number off your current income. Then, if your finances improve, you will have more money to spend, or you can even upgrade later. But it is dangerous to buy a house based off anticipated income.
2. You Decide What You Can Afford, Not the Bank
When you apply for a home loan, you will talk to lenders and banks, such as Saginaw Medical Federal Credit Union, about your financial situation. Using a debt-to-income ratio, the lender will tell you how much they are willing to loan to you. When they give you this number it may be more than what you expected. Don't let this fool you. Just because they will loan you more doesn't mean that you can actually afford more. Instead, choose beforehand how much you want to spend on your house each month. Then regardless of the number that you get from the bank, you know how much you can spend to stay in budget.
3. Put Your House Together Slowly If Needed
When you first get into your new house, you may be tempted to get everything perfect right away. You may want to decorate every room, put in the yard and a fence, finish the basement, and so forth. If you have the savings to do this that is fine, but know that in most cases it is safer and better for your budget to do make improvements in stages. This keep you from having to take out extra loans or a second mortgage on the house.
By doing these things you can avoid becoming house poor when you purchase your home.
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