Why Do Home Owners Become House Poor?

Why Do Home Owners Become House Poor?Becoming house poor is one of the most common problems home owners run into. This happens when your house payment is so large you have no extra money to cover your expenses and pay for emergencies, to say nothing about saving for the future. To avoid becoming house poor, your house payment shouldn’t exceed 25% of your paycheck. Even if at the moment you can afford to pay up to 30%, think twice before doing so, since your circumstances may change on the long run. If, however, you are already house poor, analyzing your situation can be of great help in dealing with it.

Is your situation permanent? If your situation is going to last longer than two or three years, you’d better consider some options to change it. But if you determine that it is temporary, it may be possible to pull it off. You will need to practice more frugality, with no such luxuries as vacations and other expensive pastimes.

How much do you love your home? If you really love it, you may consider making sacrifices to keep it. The way to do it is to increase your income. You can change your career or job, take an extra job, or do some freelance work. If you opt for this, set a time limit. If your income does not improve within this time limit and you still cannot afford your home, you’d better consider selling it.

When you determine to sell your home. Once the decision is made, find a good realtor and/or put your house on the market as soon as you can. Don’t wait until the last moment, when you become desperate to sell, because when you need to sell quickly you will get less from the house.

Avoid bringing it to foreclosure. If you realize you are getting to the point, when you are late on payments and heading toward foreclosure, and your home sells on less than what you owe on the mortgage, consider short sell. Talk to your bank if it would agree to cover your mortgage with the money your house sells for. Thus the lien will be released and you’ll be able to turn the title over to the new owner.

Lessons for the future. When purchasing a home, first of all determine the amount you can afford to spend, prior to going shopping. To determine this amount, set your maximum limit at 2.5 times your current salary (or about 25% of your monthly income). Do not rely on salary increase or on what the bank is likely to lend you. Consider also buying your home in the areas of the country, where housing prices are lower.

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