Don't forget every single Master Your Money course is 50% OFF through July 22nd.
Budgeting. Debt. Investing. Real Estate.
All half-price.
Get it while the gettin's good.
Sale ends July 22.
You've only got a couple days, so don't wait til the last minute and forget.
And speaking of fat guys in specialty gear going down chimneys...
Let's talk about real estate.
(Incredible segue, I know.)
Let me paint you a word picture.
You get pre-approved for a mortgage.
The lender says you can borrow $450,000.
Your brain hears: "You can AFFORD $450,000."
So you buy at the tippy-top of that number.
Every dollar.
Maybe you even stretch a little, because the kitchen had a waterfall island and you blacked out before your logic kicked in.
Six months later, here's your life:
- You own a beautiful house.
- You eat cereal for dinner in it.
- Your furniture is one couch and a folding chair called "the guest seat."
- The AC makes a noise you can't afford to ask about.
- Every group text invite gets the same reply: "can't, house stuff."
Congratulations.
You're house poor.
You don’t own a home, your home owns you.
And nobody tricked you, you just didn’t understand what you were signing up for.
(Although you got a hint when you were bitch-slapped by something called closing costs.)
This happens because of one massive misunderstanding:
Your lender's approval is NOT a recommendation.
The bank is NOT your budgeting buddy.
The bank is answering one question: "What's the maximum we can lend this person before it gets legally awkward?"
- They don't know you like to travel.
- They don't know you have a dog with expensive hobbies.
- They don't know you want to retire someday or eat food that isn't beige.
They DO know you'll probably make the payment though, even if making it ruins your life.
"Can technically make the payment" and "can totally afford it" are two different planets.
So before you sign 30 years of your life away, here's how to avoid house hell:
1. Follow the 28% rule.
Your total housing payment, mortgage, property taxes, insurance, HOA, all of it, should stay at or under 28% of your gross monthly income.
Make $6,000 a month gross?
Your housing cap is around $1,680.
Is that less than the bank approved you for?
Almost certainly.
That's the point.
The gap between those numbers is where you live your life.
Don’t let it close in on you like India Jones escaping the Temple of Doom.
‘Cuz I promise you don’t have his plot armor.
2. Calculate the TRUE monthly cost.
The mortgage payment is the cover charge, not the whole night out.
The real monthly cost is:
- Mortgage principal and interest Property taxes Homeowner's insurance
- PMI (more on this monster in a second)
- HOA fees, if applicable
- Utilities, which are ALWAYS more than your apartment Maintenance
- Dumbass neighbors (who always have dumbass kids asking for money in exchange for Thin Mints)
That $2,200 mortgage payment?
The real number is closer to $3,000+.
If you budgeted for the cover charge and not the whole night, you're going to have a bad time.
We want bottle service and b*tches, not flat beer and another lonely night at the hand hotel.
Know the real number.
3. Respect the 1% maintenance rule.
Plan to spend roughly 1% of your home's value on maintenance and repairs every single year.
$400,000 house?
Budget about $4,000 a year.
"But the inspection was clean!"
The inspection was a snapshot.
Entropy stops for no one.
Water heaters die, roofs age, and the HVAC will wait until the hottest week of July to quit out of spite.
And there’s no landlord anymore.
YOU are the landlord.
And your tenant (you) is about to file a lot of complaints.
4. Don't ignore PMI.
Put down less than 20%?
You'll likely pay Private Mortgage Insurance, often somewhere in the range of $100 to $300+ a month depending on your loan.
Here's the fun part: PMI protects the LENDER. Not you.
You are literally paying a monthly fee to insure someone else.
It's not always avoidable, and buying with less than 20% down isn't automatically wrong.
But you'd better know that number BEFORE closing, not discover it like a weird mole on your first statement.
Scary.
#ishouldgetthatchecked…
5. Keep your emergency fund OUT of the down payment.
I see this constantly:
People drain every account to hit the down payment, then move in with $73 to their names.
Then the water heater dies in month two (it knows, somehow it always knows), and boom, the brand-new homeowner is putting $1,500 on a credit card at 24%.
If buying the house requires your entire emergency fund, you can't afford the house yet.
The house needs a cushion.
You need a cushion.
Your dog needs a cushion.
It’s a hard world, and we all need a cushion!
Closing day shouldn’t leave you broke.
And look, I'm not anti-homeownership.
A home you can actually afford is fantastic.
But a house at the top of your pre-approval isn't a dream home.
It's an anchor with crown molding.
And the market doesn't care how nice your countertops are when you're crying next to them because you have termites.
Buy the house that fits your LIFE.
Not the number a lender was legally comfortable with.
Future you would rather have a smaller house and a bigger life than the other way around.
Taquitos,
Caleb "28% Or Walk" Hammer
P.S. Did you buy the house anyway? Is your budget being held together by prayers and a Costco membership?
I want to hear about it.
We're casting new episodes of Financial Audit, and I want my readers with the most unhinged financial stories in that chair.
Give us your worst.
