Congratulations! You’ve been working so hard for this moment of finding your dream home and here you are, standing right in front of it. As a financial planner, I help my clients plan for their future and look for strategies to help them achieve their dreams and goals. However, I also learned from my clients how certain decisions that can be based on emotions, such as purchasing a house or signing a 12- to 16-month lease, can derail their financial plan. Don’t let your dream home become a nightmare by not considering all the hidden costs and find the one that truly fits your budget in the long term. Here are five main points to consider:

1. Not factoring in all the costs: A common mistake people make is not factoring in all the costs associated with homeownership. It’s not just the listing price and agent cost. It also includes property taxes, maintenance, repairs, and insurance. If you don't budget for these costs, you may be caught off guard by unexpected     expenses. They can quickly add up and put a strain on your finances.
2. Opportunity cost: The money you spend on rent or mortgage payments could be used somewhere else for other purposes. If you overspend on housing, you may have trouble keeping up with payments and be forced to cut back on other expenses important to your enjoyment of life, like travel or dining out. You may also be missing out on other saving or investment opportunities that could significantly impact your long-term financial goals, such as retirement planning or education planning for your children. Ideally, try to keep your housing cost within 35% of your take-home income.
3. High debt-to-income ratio: Lenders often use your debt-to-income ratio to determine your eligibility for a loan. If your housing costs are too high, you may not qualify for other types of loans. What is a “healthy” debt-to-income ratio? All of your combined monthly loan payments, including things like car loans, student loans and housing, should be less than 40% of your total take-home pay.
4. Limited flexibility: Rent or mortgage payments can tie up a significant portion of your income, making it difficult to adjust your budget when necessary. For example, if you lose your job or experience a significant unexpected expense, you may not have the flexibility to make necessary adjustments to your finances.
5. Failing to plan for the long term: Finally, another mistake people make is failing to plan for the long term. If you're spending a large portion of your income on housing costs, you may not have enough money left over to save for emergencies. This can leave you vulnerable to unexpected expenses, such as medical bills or car repairs, and force you to go into debt. Also, it's important to think about how your housing needs may change over time. For example, if you plan on having children or retiring in the next few years, you may need to adjust your housing budget accordingly. If you don't plan for the long term, you may find yourself in a situation where you can't afford your housing costs or where your housing is no longer suitable for your needs.

While housing costs are a necessary expense, it's important to ensure that they fit within your budget, work for you as a value add and don't prevent you from achieving your long-term financial goals.

Disclosures:

Information presented is for educational purposes only. Youshould consult with your professional advisors before implementing anytransactions or strategies affecting your finances.

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