Many homeowners across the United States find themselves struggling to cover their housing payments and other bills. If you’re in that situation, you might be putting too much of each paycheck toward your mortgage and other home-related expenses.
How Much Should You Spend on Housing?
Financial experts use guidelines to help people estimate how much they can comfortably afford to pay for housing. If you’re spending more than 30% of your net (after-tax) income on your mortgage, homeowners insurance, property taxes, and private mortgage insurance (if applicable), you might find it hard to make ends meet.
This is a useful guide, but everyone’s situation is different. It’s important to look at your finances as a whole to figure out if you’re putting a reasonable percentage of your income toward home-related expenses. You might be able to afford high housing payments if you have little or no credit card debt, or you might have bills for healthcare, childcare, or other expenses that strain your budget.
How Can You Tell If You’re Spending Too Much on Your Home?
Struggling to keep up with your mortgage payments is a clear sign that you’re putting too much of your income toward your house. If you don’t make a change, you might lose your home in foreclosure.
You might be able to manage expenses related to your house but have trouble covering your other bills. You might resort to paying them with credit cards, which often carry high interest rates. That can get you into deeper financial trouble.
Even if you can cover all your bills, you might not have enough money left over to save for retirement or your kids’ college education. You might want to buy a new car or take a vacation, but you might think there’s no room for that in your budget.
What Can You Do If You’re Putting Too Much of Your Income toward Housing?
If you’re willing and able to move, you might be able to find a new home in a more affordable area. If your kids have grown up and moved out, now might be a good time to downsize. Selling your current home can give you money to pay off your mortgage and buy a house that will cost you less each month.
If you can’t move or don’t want to, consider refinancing. You might be able to reduce your interest rate and enjoy lower monthly payments. You might also be able to take out a new mortgage with a longer term. That will reduce the amount you’ll pay each month, but it will take longer to pay off the loan. You’ll also pay more in interest over the life of the loan. If you’re thinking about refinancing, shop around and get quotes from several lenders to find the best terms available.
Another option is to increase your income. A part-time job or side hustle might give you enough additional cash flow to comfortably meet your obligations.
