Have you ever feared losing your house?
If so, you are definitely not alone, although it may feel like you are because this is one of those things no one likes to talk about.
There is no “safe” income bracket: even people earning multi-millions or billions have lost their houses.
To many people, their home is an outward symbol of their success. So they go all out and buy as much home as the bank will lend them money for. They want the grand entrance, the staircase, the decked out kitchen (even if they do not cook), room to throw parties, and, of course, lots of bathrooms! They may even give up one or two of these items for that “Wow!” view.
Know anyone like this?
With that big, fancy house comes big repair, maintenance, and tax bills.
Even with smaller, modest houses, you will have repair, maintenance, and tax bills. They can surprise anyone.
Spoiler alert: The amount the bank or mortgage company is willing to give you is not capped at what you can comfortably afford. They often offer you far more.
Think about it, if you do not pay, the bank gets your house and they can resell it. You know they are not in the business of losing money, right? They have hedged their bet to make sure they come out ahead, one way or another.
Here are a few ways to look at your housing situation:
Scenario 1: You are looking to buy
It is up to you to determine how much house you can afford and stick to it. A good rule of thumb is to look at what you are currently paying for rent and use that as a benchmark for your total monthly payment (principle + interest + PMI + insurance + taxes + 1/27 of total purchase price for maintenance + expected repairs). If your rent includes utilities, reduce the monthly rental payment by what others are paying for their utilities.
If you have extra money each month you can increase your housing budget accordingly, but make sure to account for additional utilities if you are adding more square footage.
If you have to stretch to pay the rent payment, decrease the housing budget accordingly.
You can then use a mortgage calculator to back in to the purchase price you are looking at.
Scenario 2: You already own your home
If you already have a house, are you comfortably able to pay the mortgage, interest, taxes, insurance, PMI, maintenance, and repairs, while also paying your other bills, and saving and investing in your future?
If the answer is no, you may want to consider downsizing or refinancing your house or look for creative ways to bring in more revenue.
If yes, continue to build up your savings and investments. You want to be sure you have enough on hand to easily replace the furnace, roof, windows, or other major expense.
Scenario 3: You own your own home, but circumstances change
This is a difficult one, mostly because it can be hard to know when to let go.
Start by talking to your lender as soon as possible. You may be able to work out some alternative terms while you are getting back on track.
You may be able to rent out a room or two to bring in some additional income.
Maybe you have a friend or family member who can help you cover the payments. Or maybe you sell them a partial share of your home.
Remember that it takes time to sell a house and websites like zillow know when you are heading towards foreclosure status. Once they start showing your home with that status, bargain seekers will be making you very low offers. Give yourself plenty of time to get your house under contract before it hits this status.
And, going into foreclosure status will negatively affect your credit score.
I have had a number of tenants who were former homeowners. For whatever reason, they were no longer homeowners (most due to divorce, although one walked away from an underwater mortgage in a nice development because the roof needed to be replaced and she had no money to make the repair, let alone replace it). Many, after a year or two of renting are able to get back on their feet and buy another house. I am proud of how many of my tenants leave me because they bought something!
Regardless of which scenario you find yourself in, do your best to look at your housing as if you were a business and not an individual. It really helps take the emotionality out of these decisions. Your house, itself, is not a reflection of you. How you take care of it is.
And, if you are in a place where you cannot buy your dream house, it may help to remember Warren Buffet is still living in the same house he purchased back in 1958 when he was not a multi Billionaire.
Approaching housing from a practical, rather than emotional place is how Money Moms operate. If you want to be the Mom who actually gets this whole money thing, is ready for the unexpected, and is creating a magical future for her children, email me to see if the Money Mom Academy is right for you and your situation. This is an ongoing, learn at your own pace program where you can learn as much as you want about the topics you are interested in, whether money, finances, investing, money mindset (especially beneficial for those of us raised on “we can’t afford that” and “money doesn’t grow on trees”), or generational wealth. It is the fastest way to get from where you are now to living life on your terms.