Buying a home is a wonderful step into becoming a responsible adult. If you are at the stage where you have saved a sufficient amount for a downpayment, received a pre-approval from a lender and started house-hunting, congratulations! You are well on your way to becoming a homeowner.
One sure-fire way to spoil all of the hard work you have done to get to this point is buying a home you cannot comfortably afford. Being “house-poor” is a term you may have heard before. In a nutshell, it means that you have bought a home that you can technically afford – you can cover your mortgage, utility bills and home insurance costs every month, but that’s about it. At the end of the month, after all the bills have been paid, you’re consistently finding yourself with a zero balance in your bank account. There’s no money for savings, little left over for extras, like an occasional meal out, and certainly no reserve fund should any unexpected home repairs arise.
Here are some steps to take to ensure that you don’t become house poor:
I’ve said it before and I’ll say it again: Do not let your lending institution tell you how much you can afford. This amount is determined by YOU. It should be thoughtfully established by sitting down and coming up with a household budget that is accurate and realistic. Your home expenses (including mortgage payments, property taxes, utility bills and home insurance) should account for no more than 35 percent of your monthly income.
Financial expert and television star of the hit TV show Till Debt Do Us Part, Gail Vaz-Oxlade, has a unique suggestion for potential buyers. Practice first. A few months before you buy, determine your mortgage payment and estimate other monthly expenses. If you have no clue how much a typical water or hydro bill is every month, ask other homeowners! Add it all up and place this amount (less your current housing costs) in a savings account to see how comfortable you are. Not only will you be saving money that can be used towards your closing costs, but you will have a much clearer picture of what it’s really going to be like once in your new home.