Are you thinking about refinancing your home because you are having difficulties keeping up with your monthly payments? Homeownership can be very expensive especially under our current circ*mstances. There are so many payments that you need to pay off on top of your home loan. While your mortgage may be a fixed cost on your budget, the rest of the expenses on your list are not.
According to the latest data from Bankrate.com, the cost of homeownership is higher by 21% for a 3-bedroom home. This is comparing the fourth quarter of 2013 with the same period in 2012. This data is based on the statistics in the final quarter of 2013. The average monthly cost is $865 for a 30-year fixed rate mortgage with 4.46% interest and a 20% down payment. This is much higher than the average $714 for the same size home the previous year.
For a family that takes home $3,000 a month, paying for this each month can be a burden. In most cases, what you will sacrifice iis your savings or your retirement contributions.
We all know that saving up for retirement and your emergency fund is very important. Both can help you secure your future so you will not have to compromise your way of living. This is why you need to consider how you can possibly lower your expenses so it is more affordable to you. With your home loan eating up a huge part of your budget, you may want to concentrate on how you can afford to pay this off.
3 ways you can deal with mortgage loan difficulties
Obviously, lowering your monthly mortgage is not possible. You may be able to do it by refinancing your home but if you are in a financial crisis, taking on more debt against the equity of your home is not advisable. So what can low income households do to continue owning their a house despite the fact that they can no longer afford it?
We have three suggestions for you.
Rent out a room
One option, at least if your home is big enough, is to rent out a portion of your home. The most popular way is to rent out a spare room. Clear out a room that you are not really using and rent it out to someone else. The rent you will get from a tenant can help you with your home loan payments. They can also be great company if you are living alone. This is a great option for people who are in town temporarily. Renting a room from your home is cheaper than leasing a whole place of their own.
If you live with kids or you are not comfortable sharing your home with someone else, you may want to rent out your garage or something. That way, the tenant does not have to go through the main house. Or you can rent out the room as a storage space. That way, you do not have to be bothered by someone else living in your home every day. There are some people who merely need a space for all their stuff. You can use your extra room or attic as a storage area.
Co-op rental management
This is a type of rental investment wherein you share ownership, maintenance and rental income rights with someone else – or a group. The investment is smaller but you will still get additional income nevertheless. Of course, you have to be careful about who you will share this investment with. You want to choose someone who you can trust and is not difficult to deal with. Be transparent with each other so your investment together will not be compromised.
There is also an option for you to be a rental manager. You do not have to give up your home if you do not want to. You can move to a smaller home and have the big house rented out for a bigger amount. That should help cover your mortgage and your other expenses too. You can even have yourself hired by a rental property investor as a rental manager. Some of them will allow you to live in their property for free while you take care of the needs of the other tenants in the property. This should be a great way to get back on track with your home loan and even your savings.
Downsize your home
The last option that you can pursue is to downsize your home. Just give up the big house, sell it and use the profit from the equity to get yourself a smaller home. You can have an RV or a Tiny House. The RV should be a great way to move around while you are trying to get your finances back on track. This is actually a great option for those who are retired and not tied down by a 9-5 job.
Tiny home is also an option that is gaining popularity – not just with those who are retired. For $20,000, you can actually build yourself a tiny house that is mortgage free and customized to only have the things that you need. According to a 2013 infographic published on TheTinyLife.com, 68% of tiny house owners do not owe any home loan. This is a big percentage compared to 29.3% of the other US homeowners.
Other expenses you need to pay on top of your mortgage
The thing about homeownership is that you have to pay off more than just the home loan each month. There are so many things to pay for from the money you buy your own home. Here is a list of the things you have to pay off too.
- Inspections. Before you buy a home, it is important for you to have the home inspected. You need to pay for both home and pest inspections. That way, you will not have problems when you are finally living in that house.
- Home appraisal. If you are applying for a home loan, this is part of the expense because the lender will only let you borrow based on the value of the house. This is usually cost between $350 to $400.
- Closing cost. According to QualifiedMortgage.org, the average closing cost for FHA buyers is usually 2% to 5% of the mortgage. You need to pay this off in cash or apply for a new loan to cover it. The former is preferred because it will allow you to keep your loan payments down.
- Moving costs. The amount you will spend will depend on where you will be coming from. The further you are, more expensive it will be.
- Furniture. Some new homeowners fail to budget for new furniture. While you can bring your old furniture, how sure are you that they will fit your new home? It may be best to budget for this expense so you are ready for any event.
- Insurance and taxes. Home insurance is a must for homeowners. Not only that, if your area is flood prone, then you need to get additional insurance for that. Another recurring expense that you need to pay for is your annual property taxes. Do not skip this because you might get in trouble with the government.
- Utilities. This may already be a part of your budget – the utility costs. But it should be important to note that if you have bought a bigger home, the utility expenses will be bigger too. Of course, there are ways to save by being energy efficient in your home. But that would still cost more in a bigger home.
- Home repairs and maintenance. Lastly, you want to make sure that you factor in the cost of repairs and maintenance. No matter how great the home is, it will require repairs every now and then. Not only that, maintaining your home will cost you. For lawn moving to the gardening tasks, these will cost you.
Think about all of these as expenses that will have to be made on top of your monthly home loan payments. If you budget all of these, you will not fall short once you already have your home. It will keep you from being placed in a position wherein you can no longer afford to pay off the financial obligations of your home.
