April is Financial Literacy Month, and many North Carolinians are focused on learning more about their finances and achieving long-term financial stability. Home ownership has long been regarded as one of the best ways to grow your wealth and provide financial success for the future. However, if you spend too much on a home, you can end up becoming house poor—leaving you short on funds for the rest of your expenses. Read on to learn how to avoid becoming house poor so you can enjoy home ownership instead of stressing about it.
Understand What You Can Afford
One of the most common pitfalls for first-time home buyers is setting their budget for the full amount that a lender approves them for. While lenders do their due diligence and have a good understanding of your financial picture, what they don’t have is a good understanding of your financial goals outside of home ownership. While you may mathematically be able to afford what your lender approves, keep in mind your other goals, like vacations, discretionary spending and other non-home things. A good rule of thumb is that your entire mortgage payment should be between 25 and 33 percent of your income, but only you can decide your financial goals and what you can comfortably afford.
Think Beyond the Mortgage Payment
There is a lot more that goes into owning a home than sending in a mortgage check each month. To ensure you do not become house poor, it is important to understand the real costs of home ownership. Since you will be responsible for maintenance and repairs, it is imperative that part of your budget go toward maintenance and upkeep of your home, from small repairs like a dripping faucet to large efforts like a new roof. Also consider that your utilities may now be higher, as they are no longer included in your rent payment and you may have new, additional expenses such as HOA fees, lawn maintenance and more.
Buy with Your Head, Not Your Heart
So you have calculated your finances and come up with the right budget for you, but during your home search you find the perfect house—for much more than your budget! Many first-time homeowners find this scenario to be true, and some even put their financial security at risk to get their dream home. To avoid becoming house poor, it is important that you think logically about the home purchase and not be swayed by your emotions. That perfect house might be great now, but it could cause you much grief for the long-term.
Do Your Research Before You Buy
Are you looking for mortgage products that can help you buy the home of your dreams while still maintaining your financial security? The NC Housing Finance Agency offers products that can help you buy a home with a mortgage that you can comfortably afford. With forgivable down payment assistance and lenders statewide, the NC Home Advantage Mortgage™ is a great choice for first-time and move-up home buyers. To learn more, visit www.nchfa.com/home-buyers.
And keep these tips in mind as you start house-hunting, so that you avoid becoming house poor. By focusing on maintaining the right amount of spending on your home, your house can become an investment to help you build your long-term wealth instead of a burden that causes undue stress.
