If your housing alone takes 50% of your income, no cutting back on fun stuff will balance your budget. There are ways to have a home and peace of mind.
If you are paying a mortgage, there are 2 options to look at first:
First, Mortgage Insurance. This is money that you pay to protect the bank; you will never benefit from it. You likely had to get this insurance if your down payment was less than 20% of the value of your house.
Can you stop paying mortgage insurance?
If the principle that you owe on your home is at or below 80% of the price of your home when you bought it, you don’t have to pay mortgage insurance anymore. The lender should automatically stop charging you, but it is never a bad idea to check.
If you paid any extra on your mortgage, it’s likely you can stop paying sooner.
1.) Contact your lender to find out when you can stop paying.
2.) If that date has passed or is approaching, make sure the lender stops charging you for mortgage insurance.
Last note on mortgage insurance: if you are halfway through your loan term, like 15 years into a 30-year loan, you should be able to stop paying mortgage insurance even if you have not reached 20% of principle paid.
What else can homeowners do? Refinance with a lower interest rate. Right now housing prices are rising, but there are still pretty low interest rates for refinancing.
For Renters: an upside is you are not stuck in the place you are renting. That means you can negotiate. The average increase on rent is 3% annually. If your landlord is asking for significantly more than this, it’s worth a conversation. Here is a link to more in-depth advice:
Good points to bring up when negotiating rent:
- Being a good renter is worth a lot!
If you pay on time, don’t trash the place, and have no drama with neighbors, it is worth it to a landlord to keep you, instead of rolling the dice with a new renter.
- Offer to sign a longer lease for the right price. Turnover is expensive for landlords. Ending the lease in the summer when finding new renters is easier might also be something you could offer.
If all else fails, there’s always… Moving:
Do you live in an extremely expensive part of the country? Would moving be like getting an automatic huge boost in pay, because you don’t have to pay Manhattan or Silicon Valley prices for housing?
There is more to a home than the house itself. Being employed and having a community are also important, so this is not always an option. Still, it might be worth considering it before dismissing it. Would selling your home for something less expensive make sense? Is it possible to rent somewhere less trendy or with a housemate?
It is worth a lot to bring your housing budget down.
All Your Worth: The Ultimate Lifetime Money Plan by Elizabeth Warren and Amelia Warren Tyagi.