Stacie Wade has a client that bought her first home about eight months ago. Wade went to her house recently to conduct some business and discovered the woman barely had any furniture.
“She’s being smart. She didn’t want to put anything on her credit cards. Instead, she was saving up for extra furniture,” says Wade, personal finance consultant and owner of Jireh Financial Solutions in Omaha.
Her client doesn’t want to get messed up financially with purchases and other costs for their home. This is what professionals call “house poor,” or when someone spends a large amount of their income on homeownership and the costs that come with it.
Being house poor can make life harder. You don’t have as much money to use for fun, and you end up putting most of your money into your house.
“Sometimes, people just need to figure out that maybe they don’t need all the expensive things that we think we need,” Wade says.
Here are some of the things to do and think about that might help you not be broke because of a house:
Have Patience And Save
Before buying a house, you need to take the time to see if you have six-month’s income stashed away for emergencies. “It takes diligence,” Wade says.
When you finally do get your house, you’ll have a safety net in the unfortunate event that you lose your job, have an illness or have any other circumstance arise.
Understand Your Lifestyle And Budget
A lender might tell you that you qualify for a $350,000 loan. But does that person know how much your daycare costs are? What about all those weekend trips your family likes to take?
A lender might tell you that you qualify for a $350,000 loan. But does that person know how much your daycare costs are? What about all those weekend trips your family likes to take?
A lender might tell you that you qualify for a $350,000 loan. But does that person know how much your daycare costs are? What about all those weekend trips your family likes to take?
“It’s the lender’s job to fulfill a dream,” Wade explains. “They have software, but they don’t take into consideration all the experiences that you have ahead of you, and what those will cost.”
Don’t Buy Too Expensive Or Too Big A House
When you buy too much of a house too soon, all your money goes toward the house and not your future.
“You have to understand that life isn’t just about work and no play,” Wade says.
Wade says her mentor told her that her first house should be a basic, simple house, nothing lavish. Live in that home for three to five years before upgrading into something bigger and better.
Know The Extra Costs Associated With Buying A Home
So many things might need to be fixed, updated, completely renovated in a house, and especially an older one.
You’ll also have utility costs, property taxes, mortgage insurance if you don’t have 20 percent down, possible HOA or condo fees, and much more.
If you are coming from a small rental to a house, you might need to buy things like a lawnmower, snow blower, curtains and blinds, rugs, and possibly appliances like a washer and dryer.
Click to see how much home you can afford.
Make Sure To Have Adequate Life Insurance
Life insurance is another cost, but Wade says that if you are relying on a spouse’s salary to pay the mortgage, then having life insurance can save a lot of agony if something happens to that person.
It’s really about avoiding a problem if the worst happens.
Make Repairs And Renovations When Needed
If your water heater begins to leak, it can become serious. You might try to avoid repairs, but so many things will just get worse if not fixed – sort of like an aching tooth. It could be time to start a savings account just for home repairs.
Using The Wrong Contractors For Major Renovations
Using a licensed contractor can save you time and money in the long run. Saving money by choosing someone with less experience or scruples might cost you a lot more in the long run.
Don’t Make Your House Your Only Investment
Wade says that no matter what kind of house you buy, you should continue making monthly contributions to your retirement plan.
Some people rely on their home as a supplement to Social Security. But the cost of retirement can be more costly than you imagined or the length of retirement might be longer than you think. Be prepared with a retirement plan, Wade says.
“Some of my clients are fortunate enough to have a tax refund this year. So, I tell them to use a portion of that to pay their life insurance premiums or put in their vacation fund,” she says. “If they need to catch up on bills, that would be good, too, instead of just blowing it.”
