For many people, homeownership is a huge financial achievement. Depending on where you live, even a small starter house or condo can cost you hundreds of thousands of dollars. In some cases, however, the property you purchased can change from dream-come-true to a long-term nightmare.
Until you take a step back, you may not even realize what a headache your house has become. Even worse, you may not come to terms with the fact that your home is bankrupting you. Research from Consumer Affairs shows that 69% of homeowners in the U.S. feel that they are “house poor.” The term generally refers to when a person is spending too much on their home, leaving little income to pay other bills.
If you think you might be in over your head, consider these six signs you can’t afford your mortgage — and start taking steps to remedy the situation.
Your Income Is Tied Up in Your House
One of the first indications that you may not be able to afford your mortgage is if a large portion of your income is dedicated to your home. According to Chase, you should spend no more than 28% of your monthly gross income on your mortgage payment. It is important to note that your mortgage payment generally includes “principal, interest, taxes, and insurance.”
While there are other models you can use to see if you are spending too much money on your house, a good rule of thumb is that if you are paying over one-third of your paycheck, you can’t afford it. Many homeowners who end up with a house that they can’t afford point to their prequalification letter from their lender. They assume since they were approved for it they can afford it. While the letter is a good starting point, you need to make sure that you have taken all of your current and future expenses into consideration before relying on it.
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You Aren’t Saving Money
Another sign that you may not be able to afford your mortgage is that you aren’t saving money each month. Whether you are unable to contribute to your retirement or put a little away in your rainy day fund, spending all of your money on your home will make it hard to prepare for the future.
Worse yet, if you are pulling from your savings each month in order to pay your mortgage, you will likely regret it down the road. If you find that you are dipping into what you have saved up, you need to reevaluate your spending.
You Have High Credit Card Bills
Getting into credit card debt is easy, but getting out is not. Don’t worry; most credit card companies are more than willing to let you open a new account or tack on to an existing balance. What should concern you is if it will take you years to pay off that debt.
If making your mortgage payments means you are having to put your everyday living expenses on a high-interest credit card, you are probably living in an unaffordable house.
You Are Late on Payments
Routinely making late payments or missing them altogether can kill your credit. If money is tight and you are not sure you can make your mortgage payment — or other important payments — on time, contact your lender. If every month is a struggle, you may need to restructure your budget or look into refinancing your loan.
You Defer Maintenance and Repairs
Your house is an important asset. It is also an investment. To get the biggest return on your investment when you go to sell it you will need to do upkeep and maintenance.
If your mortgage payment is eating up too much of your income, your home could fall into disrepair. The longer you neglect it or defer making repairs, the more expensive it will be when you go to fix it.
You Can’t Go on Vacation
Finally, the last sign that you may not be able to afford your house is if you never have enough money to do the things you love. Buying a home may mean that you have to make certain sacrifices, but it shouldn’t mean that you have to give up everything.
If your happiness requires the ability to travel or go to concerts, make sure that those things are factored into your budget. Depriving yourself completely of things that bring you joy will only make you resent the thing that is not allowing you to do them — aka your house that you really can’t afford.
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