Are You "House Poor"?

Take Charge America Offers 5 Tips You Need to Know When Buying a Home

PHOENIX, Ariz. (March 21, 2006)... The so-called American dream includes a new home, fancy car and white picket fence. While this vision may not come true for many of us, it is worth striving for. So, what happens when the dreams cloud your reality, and you end up with much more than you bargained for? Case in point: buying too much house.

Mike Sullivan, director of education for Take Charge America, a non-profit credit counseling company, says a home is one of the most important investments you can make, but buying the wrong home could put you in the poor house for a very long time. “Ruining your credit to buy a home is not worth the long-term repercussions,” he advises. “It is vitally important to live within your means in order to build your credit.”

Sullivan has five tips you need to know about buying a home:

• More Than a Mortgage – Traditionally, your mortgage payment should be no more than 28 percent of your income. Your total mortgage payment, combined with your monthly debt payments, should not exceed 36 percent of your income. But keep in mind, a mortgage is only part of the picture. Before buying a home, investigate what the common utility bills are when the home is fully occupied. You also need to take into account other expenses like yard and pool maintenance, as well as unexpected maintenance and repairs.
• Sell & Downsize – If you have already fallen victim to too much house, or perhaps the kids have moved out, it is time to reevaluate your housing needs, rather than your housing wants. Consider selling your home and downsizing. Do you really need two guest rooms? Do you need a pool? The profit you make from selling your home can also be used to pay off credit card debt, or reinvest into a savings or retirement account.
• Get a Roommate – If you are living slightly outside your means, or you are trying to save up money, getting a roommate could be a simple solution. If you place an ad for a roommate, check their credit report and perform a background check. The fee associated with these reports will be well worth the peace of mind and potential hassles in the long run. Don’t get scammed! Always have a roommate sign a lease, which protects both parties.
• Refinance – Refinancing your home can reduce monthly payments. In addition, you could eliminate mortgage insurance, escrow payments or get extra cash. However, the amount of money you save depends on your total refinancing costs, whether you plan to sell your home in the near future and the effects of refinancing on your taxes. Talk with a lender or credit counselor before making this move. Of course, the better your credit score, the better chance you have of obtaining the lowest interest rate. Don’t forget to check your score and clear up any problems that may be affecting your score.
• Don’t Cash Out All the Equity – Cashing out the equity in your home to pay off other bills sounds tempting, but it’s not a good idea. Homeowners who cash out usually end up paying more in the long run because their payments are stretched out over a longer time period. Plus, if the market shifts, you could be left owing more than your home is worth.

About Take Charge America
Founded in 1987, Take Charge America, Inc. (TCA) is a non-profit 501(c)(3) organization headquartered in Phoenix, Arizona. TCA offers a variety of services including financial education, credit counseling, and debt management. TCA’s programs are utilized by tens of thousands of families and individuals each year. To learn more about TCA or its programs please call 1-800-823-7396 or visit www.takechargeamerica.org.