Owning a home can be a powerful thing. It can bring happiness and security to you and your family, and it’s often a wise financial decision. But sometimes, your house can be a problem.
Many of us fall for the temptation to purchase a home that is ultimately too costly for us to sustain. We pursue our “dream home” only to find that the costs of ownership and maintenance are actually preventing us from achieving other goals. Let’s examine the signs that your house may be holding you back.
1. It is costing you more than 30 percent of your income
It’s fine to budget a certain amount of your income to housing costs, but at a certain point, that share becomes too much. The federal government advises spending no more than 30 percent of your income on housing. This is not a requirement — very wealthy people may be able to afford more — but it’s a good rule of thumb. For most people, once you pass that 30 percent threshold, you may find it hard to make your housing payments and cover other expenses in your life.
2. You’re barely making a dent in the loan principal
One of the major advantages of owning a home versus renting is that you have the opportunity to build equity over time. This can be a major part of building net worth. But, a large mortgage loan with unfavorable terms could mean that you are paying mostly interest and very little principal.
With most home loans, homeowners can build equity over time — if they’re patient, they can pay off the interest and begin chipping away at the principal. But some mortgage loans (such as interest-only or negative amortization loans) can leave a homeowner with little to no equity and may even leave them owing more than the home is worth. This is a hard situation to get out of, but if you can find a way to refinance your mortgage into a fixed-rate loan, the house will be less of a financial burden over time.
3. You are taking on other debt
It’s OK to have some mortgage debt, but when you find yourself borrowing to pay for other things, that’s problematic. Have you been forced to finance your cars instead of pay for them outright? Are you taking on credit card debt? Your house may be responsible for an ever-increasing debt load that could eventually destroy your financial dreams.
4. You’re struggling to hold onto it
When that mortgage bill is due each month, are you scrambling to get the funds together? Have you been late on payments or skipped them altogether? Is the bank threatening to take your home away? This is a horrendous way to live. Chances are, you’ve taken on too much house. That home, which is supposed to provide your family with shelter, security, and comfort, is now something you can barely afford to keep. It may be time to devise an exit strategy.
5. You’ve come to resent the house
A home should be a source of pride. It’s the place where you watch your kids grow up, grow vegetables in the backyard, and host Thanksgiving. Your home should be your refuge and a place of happiness.
Have you instead found yourself simply hating the place? Have you ever said, “Gosh, I can’t stand this house?” Maybe it’s because the house is haunted or backs up to the city dump. Or it could be that the costs of owning and maintaining the house stresses you out. If your house is a source of strain rather than joy, it could be that it’s too much of a financial burden.
6. Your life has shrunk
OK, so you have your house. You go to work every morning. What else are you doing with your time? What dreams are you pursuing?
Sometimes, our housing costs impose such a burden that we find ourselves unable to really “live” life in a meaningful way. Taking time to travel? Forget it. Going back to school? No way. Starting a business? Not a chance. Even going out to eat with friends and family may be out of the question.
You may feel “rich” living in a large, expensive house. But how rich is your life, in the final analysis?
7. Investing seems impossible
Your employer offers a 401(k) plan, but you haven’t even thought about contributing. You’ve heard about things like IRAs and mutual funds, but can’t bother to research what it all means. The notion of putting money aside for retirement seems almost ridiculous, because you’re barely treading financial water.
There’s no question that investing can be difficult when you have other living costs to consider, but you need to budget for the future in the same way that you budget for groceries and other costs. If you find it hard to set aside even a small amount, it could be that your house is eating up too much of your income.
Reducing your housing costs and freeing up even $50 to $100 per month could represent tens of thousands of dollars in savings over time. If you can further reduce your housing costs by thousands and invest toward retirement instead, you’ll be sitting pretty.
8. You feel stuck in your job
Maybe you’re not satisfied with your career path, or aren’t getting along with your boss. Perhaps you can’t stand your commute. Ideally, you can simply leave your job and find a new one. But sometimes, we stay at jobs because the pay and other benefits are simply too good to pass up. How many of us have said, “I can’t leave this job because I’ve got a mortgage to pay?”
If this sounds like you, think about how your house is actually forcing you to stick with a job you hate. While we all must earn income to live, we also all deserve the right to pursue careers based on reasons other than money. Moreover, we should ideally be able to take time off work — or endure a job loss — without it resulting in immediate financial disaster. If you feel trapped in a job you don’t like, are your housing costs to blame?