Four Signs You Might Be in Over Your Head, and How We Can Help

Buying a home is one of the largest investments many people will ever make. If you aren’t paying with cash, then buying a house involves getting approved for a mortgage. While lenders will scrutinize your finances to ensure you’re likely to repay what you borrow, it’s still possible to buy more home than you can really afford. A good working relationship between your lender and your real estate agent is the best way to stay on budget and avoid the costly mistakes below. 

1. Your mortgage payment is a sizable portion of your monthly take-home pay

If your monthly house payment – principal, interest, homeowners’ insurance, and real estate taxes – make up more than one-third of your monthly income, then it’s a good sign that you’ve bought more home than you can afford. You will likely have trouble meeting all of your financial obligations – which puts you at greater risk of foreclosure and/or personal bankruptcy.

Ideally, your mortgage payment should be less than 30 percent of your disposable income. 

2. You can’t afford to save for retirement

Saving for retirement is a crucial component of your personal financial goals. However, if your mortgage payment is preventing you from saving for retirement, you are spending too much on your house.

Most people need to save between 10-15% of their income to have enough money for retirement. Fall below that and you might have to work longer and/or retire with a much lower standard of living.

3. You can’t afford household maintenance and repairs

As a homeowner, you have to be prepared to pay for essential maintenance and repairs on your home – which can be expensive. For example, your water heater could go out or you might need to replace your roof. That is why you should save money in an emergency fund to cover any necessary household repairs.

Ideally, you should save between 1-4% of your home’s value each year to cover essential maintenance.

4. You are using high-interest debt to help pay for living expenses 

If your monthly house payment is stretching your finances, you might be turning to high-interest debt to subsidize your living expenses. For instance, are you carrying a lot of credit card debt at the end of each month? Have you taken out – or are you considering – a personal loan to help you make ends meet?

If your house payment doesn’t leave you with the funds to cover your daily living expenses, vacations, and Christmas gifts then you might have bought more home than you can afford. 

There are some available options that can help you avoid going into debt, or worse foreclosure and personal bankruptcy. For example, check with your lender to see if refinancing your mortgage will lower your monthly payment. Take an extra job to boost your income or contact a real estate agent to sell your home and get you into something more affordable. 

Why Choose Summer House Realty

Prior to putting yourself into this type of situation a seasoned Augusta real estate agent can assist you in choosing the right home for your budget. At Summer House Realty our agents are well versed not only in the local market but they are a valuable asset in guiding you towards a budget and plan that will make your real estate investment the right one for you. Contact us today for a free real estate consultation and budget analysis (706) 955-6436.