It’s no secret that millennials have a tough time buying houses. In fact, the average age that people are buying their first home is on the rise and it’s largely due to difficulties with saving the money for a down payment. Rent prices are increasing and wages are not increasing in line with them, leaving people with less money to put into their savings.
Even if you are good with money, it takes a long time to save the money that you need. But should you buy a property straight away? Many people think that saving the deposit is the big hurdle you need to overcome and then it’s plain sailing from there. Unfortunately, that isn’t the case.
An increasing number of people are becoming ‘house poor’ and facing serious financial difficulties as a result. This article will explore what it means to be house poor and how you can avoid it when purchasing your first property.
What Does “House Poor” Mean?
Being house poor means that the majority of your income goes on your mortgage payments and other costs associated with being a homeowner. As a result, it is impossible to achieve any other financial goals, like saving money or making investments. In some cases, people find that they struggle to cover other financial obligations because so much of their monthly income is taken up by home costs.
Usually, this happens because people do not consider the full cost of owning a home, they only consider the mortgage payments. The thing is, maintenance on a home is expensive, especially if you buy a fixer upper. Then you have to consider things like insurance and taxes on top. When people don’t factor these costs in, they end up house poor and their finances are stretched.
How Can You Avoid Being House Poor?
If you want to avoid being house poor, you need to calculate your budget properly before buying a property. Use a hdb loan calculator to work out what your monthly mortgage payments will be. Then, get some quotes for home insurance and look into the taxes you will have to pay. You can also expect to pay around 1% of the home’s value per year on maintenance. Add all of these costs up and then you will get a true figure for the monthly cost of home ownership.
As a general rule, your home costs should add up to no more than 28% of your monthly income. This leaves you money for other bills, general spending, and saving. However, if you live in an expensive area, this may not be possible. The important thing is that you add up all of your expenses, including your home costs, and see what is left over. If you are left with next to nothing, you may need to rethink your decision to buy.
So many millennials find themselves in this position because they are eager to buy a house and they rush into it as soon as they have the down payment ready. However, it is important that you consider all of the costs so you can avoid being house poor.