by Maurie Backman | Jan. 29, 2021
Here's what to do if you've taken on too much house.
2020 was a challenging year to buy a home. Although mortgage rates were extremely competitive (and still are), inflated home prices made it much more difficult to find an affordable place to make an offer on. As such, a lot of sellers stretched their budgets in the course of the previous year. If you're one of them, you may be feeling financially squeezed now. If that's the case, here are a few things you can do to compensate.
If you recently signed a mortgage, your monthly payment is pretty much non-negotiable (unless you've experienced a notable financial hardship and have grounds to ask your lender for leeway). Normally, homeowners have the option to refinance their loans and lower their monthly payments in the process. But if you just bought a place last year, there's a good chance you won't be able to score a lower interest rate on your loan than what you're currently paying. If that's the case, you'll need to look at slashing other costs in your budget.
Comb through your expenses and identify a few spending categories with wiggle room. For example, you might enjoy having cable, but if you need to free up cash to cover your housing costs, dumping an $80 monthly plan for a $15 streaming service is a better bet. Similarly, you can reduce your spending in categories like takeout meals, non-work clothing, and anything else that isn't essential.
When you own a home, maintenance is unavoidable. But you can lower your costs by doing some (or all) of that work yourself rather than outsourcing it. If, say, you normally pay $100 a month for a landscaper, do your own yard cleanup and lawn mowing. As long as the work in question isn't hazardous and doesn't require specific training, there's no reason not to put in the time and effort.
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If you're having a hard time keeping up with your mortgage, collecting rental income could be a good solution. Not every home is conducive to having a tenant, and not every town allows for it. You'll need to call your local town or city government office and speak to the zoning department about whether your home is eligible to become a rental. But if you do get the green light, taking in a tenant could put hundreds of dollars a month in your pocket.
You may not be able to easily cut back on spending, do your own upkeep, or rent out space to a tenant. If those aren't options, look at getting a second job. Earning even $100 a month on top of your existing paycheck could make it much easier to afford your home.
Many buyers routinely push themselves outside their financial comfort zones because they fall in love with a home or want to pounce on an opportunity. If you fell into that trap recently, don't despair. You can take steps to manage a home that's a bit beyond your means. The key is to own up to the problem and be willing to make some sacrifices to address it.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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