Pamela Vasiliu
Sales Representative
pvasiliu@remax.net

RE/MAX Professionals Inc.
Brokerage
Independently owned and operated.

Date: Tuesday September the 26th, 2017 
416-236-1241

 

   

5 Tips to Avoid Being House Poor

February 7, 2015 - Updated: February 7, 2015

 

The price of a house is perhaps one of the most crucial factors in the purchase process, though it can be all too easy to neglect its weight once the home search begins. $15,000 of cushion can become a $50,000 compromise in a matter of minutes.

By determining absolute price points before you even step foot inside the first house, you can confine your interest to houses in an affordable range, making it that much harder to impulse buy or overspend. Though seemingly simple, settling on that perfect price is easier said than done.

So how much house can you really afford? Here’s how to find out.

 

Do Not Rely On…

  • …a bank, lender or real estate agent to set the amount that you should spend on a home. No matter how many calculations they run on how income and assets stack up against debt and liability, it is impossible for them to fully comprehend each unique financial situation. Prequalification is a good way to estimate the size of loan you’ll be able to obtain. But just because you qualify for a $200,000 loan doesn’t mean you should buy a $200,000 house.

  • …emotion as a basis for your logic. For buyers who purchase on impulse or simply because they “fell in love” with the house – that feeling is often fleeting. Purchasing based on actual calculations won’t leave you second-guessing yourself. Rather, you’ll feel confident that you made a sound decision, which is essential because it’ll be one you’ll probably live with for a long time.

  • …how much you can afford in minimum monthly payments, as long as nothing goes wrong. First, only making minimum payments, on mortgages, cars, credit cards–anything, is always less than ideal. Paying even a little extra more than the minimum amount each month decreases the balance faster, which exponentially decreases the amount you’ll pay in interest on the loan. This equates to savings upwards of thousands of dollars. Second, leaving little to no allowance for unexpected home maintenance can be a costly mistake.

Instead, Rely On…

  • …how much you can easily afford. Aside from the calculations of banks, lenders or real estate agents, make a few calculations of your own. First, real estate writer Jessi Hall recommends multiplying your annual household salary by 2.5 for a rough estimate of how much house you might be able to afford. With that figure in mind, set a monthly budget and practice making the mortgage payments, including property taxes and insurance, for at least three months to make sure the extra expense is manageable. Determine how much you can comfortably spend on a home. Just leave wiggle room to cover unexpected costs and always maintain a separate emergency reserve fund with three to six months of living expenses.”

  • …how much will affect your financial stability in the future. It’s about more than just what you can afford today. You should also account for future plans, like a wedding or college tuition, to assess how those financial commitments may affect your ability to pay your mortgage. These events don’t necessarily mandate a less expensive home purchase; they can also be offset by a well-established emergency fund. The key is to be prepared.

If you’ve been through the purchase process, how did you best determine how much home you could afford? Are there any other tips to share? Let us know in the comment section below! Use our Mortgage Calculator to determine how much house you can afford.


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