Keep Yourself From Becoming "House Poor"
Have you heard of the term "house poor"? If you are house poor, it simply means that you're spending most of your income on things related to your home. This is more than just the mortgage. It includes things like maintenance, utilities, insurance, and taxes. When you’re house poor, you can’t afford many other things, and certainly not big extras like vacations.
When you buy a home in Albuquerque, you need to know what you realistically can afford to keep from being house poor. One of the biggest mistakes home buyers make is being too ambitious and taking on a home that's too expensive, as well as not anticipating other expenses.
Here are some ways to buy a home in Albuquerque that you can reasonably afford and lower your risk of being house poor.
Crunch the Numbers
Before you ever start the actual process of shopping for homes, look at the numbers.
You’ll need to take into account how much your household earns every month. Then, outline all of the housing costs, which include:
• The down payment
• Property taxes
• Homeowner’s insurance
• Utilities and maintenance
Tally up all of the expenses that you currently have to pay every month. Then, look at your discretionary spending and include that as well. Including that discretionary spending is important and sometimes overlooked. It’s those extras that you want to be able to continue to pay for, even when you buy a home.
Follow the 28/36% Rule
Many financial professionals advise that you spend no more than 28% of your gross monthly income on your housing expenses. You should also plan to spend no more than 36% on your total debt, including not just your home loan but your credit cards, car loan, and student loans.
Affordability Considerations
Some of the things that you should think about beyond your income and expenses include:
• How much savings do you have set aside? You want to have a reserve of cash in case something happens, and if your down payment or mortgage costs are going to dip into your savings, that can be a problem.
• How much of a down payment can you afford? The traditional wisdom is that you put 20% down, but there are loans with options to put as little as 3% down. Remember that the lower the down payment, this higher your monthly payments will be.
• Is there a different type of mortgage outside of a traditional bank loan that you might qualify for? For example, FHA loans are backed by the Federal Housing Administration and you may qualify with a lower credit score and down payment compared to a traditional loan.
Take Steps to Get a Competitive Interest Rates
Interest rates are at an all-time low. Even so, try to get the most competitive rates you can. Having a strong credit score will help. Before you buy a home, look at your credit report, and clean it up if necessary. Try to minimize how much debt you have compared to your income.
Err on the Side of Caution
When you start looking at homes, you should always err on the side of caution. Keep your house hunt focused on the lower end of what you can technically afford. If you’re a first-time home buyer in Albuquerque, it can be tempting to want to go all-in with the belief that you’re buying your forever home. Your life can change over the years, and your first home is probably not your forever home.
Focus on finding a starter home for sale in Albuquerque that works for your current needs. You can’t just think about your current income either. Think about what might happen if you lost your job or your partner lost their income. How would that change the equation?
Finally, one option that can help you better stay within your budget is buying a fixer-upper. You can find a great deal, and then you have the option to gradually create the home of your dreams as your budget allows, rather than having to go all-in right away.
Contact us today to help you buy or sell your next home in Albuquerque. Looking for the perfect home for sale in Albuquerque? Our easy-to-use home search tool can help you start the process. Join us twice a week on our blog for more real estate advice and great reasons to buy a home in Albuquerque and the surrounding area. Follow us on Facebook for the latest Albuquerque real estate updates.
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