When I was 21 I bought my first house. I’d worked hard over four years to squirrel away enough money for a small down payment. Before too long, however, I ran right into an extremely common trap: home poverty. Basically, all I could afford was my house! It took eight months for my monthly cash flow to ‘level out’ and finally feel like I had two nickels to rub together again.

Home poverty happens when after the mortgage, insurance and utilities are paid, there’s little money left over for RRSP contributions, home maintenance, car repairs, vacations, etc. A person’s cash flow is further jolted with the initial costs of moving expenses, legal fees, closing costs, cleaning supplies and much more.

Avoid feeling house poor by preparing for home ownership well in advance of buying. Figure out what you can afford based on your current income, not what you hope your income will be in the future. Use online mortgage calculators (available through any bank) or talk to a mortgage broker.

If your credit score is in good shape, banks will approve a mortgage amount that translates into monthly housing payments (mortgage, insurance, taxes and heating combined) that are less than 32 per cent of your gross monthly income.

 

Just because you can qualify for a huge mortgage doesn’t mean you should take one! Less debt almost always translates into less stress.

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