House poor are those people who invest enormous money on real estate with a crushing mortgage. The terms contradict its literal meaning causing the confusion among the general mass. You are among the people suffering from its consequences if you own more houses than you can afford.
The significant portion of your income is spent on mortgages, leaving a little space for savings. The mortgage gets unmanageable if the income source takes a hit. Therefore, you must find a house based on your budget, not the dreams.
In this article, we have mentioned some tips to stop you from becoming house poor.
Borrow Only the Required Amount
Based on different factors, lenders offer you a pre-approved amount for the mortgage. You end up using the whole amount without considering the repayment. Therefore, it is recommended to take a loan according to your budget.
There is no need to take the amount offered to you if the repayment is challenging to manage. You should search for a house based on your budget, not the pre-approved amount.
Do Not Buy Needless Things
It is quite common for the new house owners to renovate the space before moving in. But the real estate brokers show them a perfect place well beyond their budget. This is a common tactic to make the buyer spend more than what they should.
Always stick to the list of items required in a house before purchasing the home. Do not fall for the perfect interior if it is outside your budget. You can still make some amazing changes to an inexpensive house over time.
Rent the Extra Space
You can use the extra space in the house to raise some money for the mortgage instalments. It is an easy way to get some additional support for a house outside your budget. A roommate will also help in maintenance and repairs.
It is also a solution if you are already facing the consequences of being house poor. Make sure the rent is used for the mortgage repayment, not some extravagant shopping for the home. Often, we forget the purpose of renting the house only to use the money on unnecessary expenses.
Consider Instalments Before Signing
Comprehensive research of the terms and policies are recommended before selecting a lender. You will save a significant amount of money for a slight change in interest rate. Compare the instalments on the mortgage to get the best deal.
Also, ensure the instalments are affordable before deciding a property. The overall cost of the property will not bother you more than the monthly instalments. You can apply for loans in Ireland to increase the down payment to reduce the mortgage instalments.
Add Utilities to the Budget
Mortgages do not cover the utility bills and related expenses. Even if the instalments seem affordable, you will find it hard to manage the costs after moving in. Add the utility bill to the budget before signing the deal.
Take help of the previous bills of the same house and your consumption history. It will give you a fair idea of how much the house will cost each month. Continue the search if the sum of instalment and utility bills is above the budget.
Allocate Money for Maintenance
Maintenance and repairs are unavoidable expenses for the house owners or tenants. At least 10% of the mortgage or rent should be allocated for maintenance of the house. You must prepare your finances for these possible emergencies as they can disrupt your life.
You can take help from banks and private lenders if there is not enough money for repairs. There are plenty of lenders offering personal loans in Ireland for bad credit borrowers. Moreover, the additional stress of instalments will last only a few months.
Save Money Before Purchase
A larger down payment means a smaller amount borrowed from the lender. This reduces the monthly instalments and overall cost of the loan. Therefore, it is recommended to save the highest possible amount for the down payment.
You need the savings for unexpected situations as well. The house may require some repair or renovation which was not observed during the inspection. Professional home inspectors are hired to find the damages and potential repair.
Another reason to fill your savings account is the possibility of some financial emergency. You may not receive a paycheque for months because of unemployment or some other reasons. During this time, you need money to survive and pay the mortgage instalments.
To sum up, you should shift your focus from the loan’s overall cost to instalments and the other monthly expenses. They are a better indicator of affordability for a house based on your budget. If you find yourself house poor, downsize, rent, or refinance the home to get yourself out of the trouble.