If you're shopping for your first house, then you might hear the term "house-poor" thrown around here and there. What does "house-poor" mean and why should you avoid becoming one?
House-poor is a term that describes an individual or family that falls short of other financial responsibilities due to homeownership. Because of the costs of the down payment, taxes, mortgage payments, and other expenses associated with homeownership, a "house-poor" person has limited cash flow for other obligations, such as credit card bills, auto loan payments, groceries, tuition fees, and other necessities.
If you want to buy your dream home without becoming house-poor, here are some tips that you should follow:
1. Get pre-approved
A mortgage lender in San Antonio, for instance, can tell you exactly how much you can afford and how much you will be paying back if you get pre-approved. This way, not only do you ensure that you can buy a house you can realistically afford, but a pre-approval letter will also increase your chances of getting treated seriously by a seller.
2. Build your finances first
Buying a house is a huge financial responsibility, one that you shouldn't take before you're completely ready. Before you buy a home, make sure you are financially prepared by having sizeable savings, a steady income, and a good credit score, among other financial factors.
3. Buy less than you can afford
Even though you are pre-approved for, say, $250,000, it doesn't mean that you should buy a house that is $250,000. A mortgage lender will consider gross income, which is not the total that you bring home, so buying a home that is close to or exactly the amount that your pre-approval states is a risky move.
Most people who become house-poor can no longer enjoy the luxuries that they had before buying their house, such as eating out or shopping. Hence, you also have to consider your lifestyle before you buy a home. Can you afford the house and still enjoy luxuries after? If not, you might want to choose a cheaper house.
4. Build your emergency fund
Before you buy a home, you must have a healthy emergency fund saved up in your bank account. This emergency fund will serve as your safety net in case you have to pay for unexpected repairs or lose your job suddenly.
5. Upgrade only if you can
When you finally get your first house, it might be tempting to make upgrades and renovate to make it look like your dream home. However, you must be careful about making these upgrades if you don't want to be house-poor.
Homeowners who have a lot of debt should wait before they invest in home upgrades or renovations. If you make these expenses on top of your housing costs and other debts, you might end up with little cash for the necessities.
If you buy a house that you can't afford, you may end up with depleted savings, a longer loan term, and a lot of headaches. Don't let yourself become house-poor. If you want to buy a house, follow these tips as you go along.