Mortgage Questions: Are You House Poor?

Is Your Mortgage Too Expensive?

You are house poor if you have no extra money to pay for emergencies, cover your expenses and save for the future, because your house payment is too large. Your house payment should be about twenty-five percent of your take home pay. Some people think it is okay to go up to about thirty percent if you have no other outstanding debt and do not plan on going into debt. You may end up house poor if your circumstances change and you begin to struggle to make your payments. For instance, if one of you decides to stay home after you have children. If you are house poor you need to fix the problem. Saving up for a large down payment instead of taking out an FHA loan can prevent you from spending too much on your home.

What Caused You to be House Poor?

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When you first buy your home, you may not be struggling. It happens as emergencies arise and you begin realizing that you cannot handle unexpected expenses. When you are stretched too thin financially, it slowly builds and begins to affect the things you want to do and the things that you need to do with your money. If you have a switch in your financial picture or if you add expenses like children and daycare costs, you may start to resent your house payment and wish that you did not have to deal with it anymore. 

Is This Situation Temporary?

Look at the situation and determine if it is temporary or permanent. If you know that this situation is only going to last two or three years, you may be able to pull it off, but you need to be committed to not spending unnecessarily—this means no vacations and other luxuries. If you determine that it is going to last longer than three years, you should consider options to change the situation.

Are You Willing to Make Short-Term Sacrifices?

If you love your home, you may decide that you are willing to make sacrifices to bring your income up. This may mean that you take on an extra job, pick up some freelance work or that you change jobs or careers. If this is the option you choose then you need to set a time limit. If you do not bring your income up so that you can afford the house and have enough to save, then you will need to sell it. The short-term sacrifices may be just long enough to pay down your other debts and build your emergency fund so that your house payment is more manageable. It may be paying off your second mortgage if you have one which can make managing your mortgage payment much easier.

Should You Sell the Home?

It can be difficult to decide to sell a home that you worked hard for and downsize or move to a more affordable neighborhood. However, doing this can open up options that make it easier to do the things that are most important to you. If determine that you need to sell the house and move into something more affordable or rent for awhile, you should contact a good realtor and put your house on the market as soon as possible. You do not want to wait until you are desperate to sell because you may not get as much money from the house since you need to sell quickly. 

Are You Facing Foreclosure?

You do not want to get to the point that you are facing foreclosure or you are late on payments. If you are underwater on the mortgage, it may be even more difficult to make this decision. If you are close to this but are having a difficult selling your home for what you owe on the mortgage, you may talk to your bank about a short sale. This means that the bank agrees to accept the amount you sell the house for to cover the mortgage. It will release the lien and allow you to turn the title over to the new owner. You may find yourself in a situation where you can't sell your home.

Have You Considered Other Options?

There are areas of the country where housing prices are astronomical and it is very difficult to afford homes there. You should consider all circumstances around the purchase of your home and your income. You may be better off taking a slightly lower paying job in a different area to be able to afford the things that you want the most. It is important to consider the type of lifestyle you want to live, and then make the choices that make this possible. A huge home may make it difficult to travel, while a smaller one will make it easier. If you want to spend more time with your family and less time working, choosing to live in a less expensive area will make it easier to reach those goals. 

Prevent This From Happening Again

When you purchase your first home you should decide how much you can afford to spend before you go shopping. You should keep your payments at about twenty-five percent of your income. Another strategy is to set your maximum amount at two and half times your current salary. Do not rely on what the bank is willing to lend you. Do not plan on salary increases either. You should make sure you choose the right mortgage with a fixed interest rate to prevent your payment from increasing.