Halloween is still a few months away, but a spooky article just came out in the Washington Examiner stating that more than a quarter of homeowners in U.S. are 'house poor', which occurs when a homeowner is unable to maintain the costs associated with their monthly mortgage payment and the countless other expected (or unexpected) encumbrances. If you are considering buying a home in the future, consider the following suggestions to avoid falling into the money pit.
ALWAYS listen to the experts.
A house is likely to be the biggest purchase you will make in your lifetime. There are two team members to employ who can help you win during the process. A quality realtor should work within your financial constraints while trying to stick as close to your wish list as possible. On your end, decide which aspects of the home (location, layout, fixtures) are flexible vs. non-negotiable. Another vital stakeholder in the home-buying process is your inspector. How old is the a/c? What about the roof? What condition does the plumbing appear to be in? What repairs or updates must occur for the lender or insurance company to move forward with the purchase? Make sure to ask lots of questions and have the strength to walk away if there are problems that raise too many red flags to move forward. Not sure what to look for in the inspection process? This article may help.
ALWAYS get a fixed-rate mortgage.
Even on a fixed-rate mortgage, it is easy for interest rates to make you end up paying two or three times the purchase price over the lifetime of the loan. Although some homebuyers believe an Adjustable-Rate Mortgage (ARM) will save them money in the short-term, it is an extremely risky option. Imagine if interest rates ever got back to the way they were in the 1980s and you were unprepared for the increase in house payment. Smells like a recipe for disaster!
ALWAYS have money saved for the down payment and beyond.
Aside from the importance of saving up a down payment (20% is the gold standard, which can help you avoid private mortgage insurance and keep your monthly payment lower), make sure you have enough money saved to cover closing costs with an emergency fund left after the dust settles. Things will break, and you as the homeowner you will need to pay to fix or replace them! Even if you have a fixed-rate mortgage, consider other costs that will rise over time such as taxes, homeowner’s insurance, and HOA fees.
NEVER rush to buy.
Wise men say, only fools rush in! Among the Top 12 House-Hunting Mistakes, it is not surprising that rushing to put in an offer and overlooking important flaws made the list. There will always be more fish in the sea, and there will always be another home for sale. The average length of homeownership is 16 years. Are you really going to be able to afford every cost that comes along with owning this home in this neighborhood? Are you able to move in and live in the home right away or are there urgent fixes needed for it to be habitable? Are you going to have road rage because of the traffic in and around the neighborhood during peak commute times? These are all things to be hyper-aware of before you pull the trigger. If someone else beats you to the punch or tops your best offer, take notes about what happened and move on to the next opportunity.
NEVER use debt to make improvements.
The old “needs vs. wants” dilemma. Unless you are building a home from scratch, there are going to be aspects of the property that you are not completely in love with. Maybe you wanted hardwood floors throughout the home but there is carpet. You have dreamed of granite countertops, but the kitchen has the outdated laminate kind. The tub in your master bathroom is not the luxury jacuzzi model. Many lenders would be happy to sign you up for a Home Equity Line of Credit (HELOC) loan to allow you to keep up with the Joneses and become the talk of the block. Another option: Be patient and disciplined while designating a portion of your savings as a home improvement fund to chip away at non-urgent upgrades over time.
NEVER give up!
This article is not meant to discourage you from accomplishing your goal of being a homeowner. Owning a home under the right circumstances is a wonderful investment which can help you create family memories and achieve long-term wealth. While it is true that foreclosures are surging because many Americans do not heed the advice that has been laid out here, you can become a winning homeowner once financially and mentally prepared to navigate the process in a calm, calculated, and controlled manner.
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