1. Money

Are You House Poor?

Is Your Mortgage Too Expensive?

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One common problem that people run into is that they become house poor. 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. 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.

1. 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.

2. 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.

3. Should You Sell the Home?

You may 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.

4. 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 difficult selling your home for what you owe on the mortgage, you may talk to your bank about a short sell. 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.

5. 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.

6. 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.

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