How to Avoid Payment Shock
A lot of First Time Buyers start their homeowning lives by paying more than they used to for rent. It’s not uncommon for someone paying $500-800 a month in rent to jump up to a $1,000-1,2000 monthly mortgage payment. This difference in monthly payments is referred to as “Payment Shock”.
It may sound scarier than it happens to be, but the fact still remains that new buyers need to know how to deal with this increase in living expense.
The most common question I ask to my clients is:
“How are you going to deal with the higher payments?”
Some people are honest, and then some people just straight up lie – to themselves and me.
The honest ones are usually the most successful homeowners in the long run. Sometimes they flat out say, “I don’t know,” or “We’re cutting back our eating-out budget.” Maybe they’ve had a raise at work, or finally paid off their student loans. This can free up some more money in order to cover the mortgage payment.
So, how do you combat this devil-of-a-payment difference? The easiest way is to lay out a very realistic budget for your monthly expenses.
Here’s some of the things you may include on your list:
- Car Loan Payments
- Car Insurance Payments
- Student Loan Payments
- Utilities (Cable, Heat, Water, Garbage, Internet, etc.)
- Phone Bills
- Credit Card Payments
- Savings Put Away
Your list should include all your fixed (or mostly fixed) payments, so you can visually see where your money is going every 30 days.
Next, try writing down everything you spend your money on for at least one month. Every time you buy groceries, eat out, buy clothing, get an oil change, buy gas, etc. Document exactly what you’re spending your money on, and how much you’re dishing out every month. It’ll probably surprise you how much money you waste on things you don’t really need, but get anyway.
By going through this list and making a concentrated effort to cut down on these unimportant items, you’ll probably save a couple hundred bucks per month.
Don’t believe me?? Try it, and let me know what you come up with.
This is a great way to find those “coins in the couch cushions” in order to pay a little extra for a house.
You may also have a newer job, or maybe got promoted which can allow you to increase your house payment. Or if you’re very frugal, you might have saved up some extra cash in order to tide you over in low income producing months.
Whatever method you can come up with to fight off this Payment Shock, do it. Be careful not to over extend yourself just because a lender says you can qualify for a higher monthly payment. If you’re comfortable at $1,000 a month in mortgage payments, then stay in that range. I promise you that stretching your budget passed it’s limit just to buy a nicer house will not make you happy in the end.
If that means you want to wait another year until buying a house, then so be it. Just make sure you write down your budget and stick to what you need!
Related Posts
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Comments
No comments yet.
Leave a comment