When your home sweet home turns into a never-ending world of debts, you know that you’re doing something wrong about homeownership. Naturally, buying a property nowadays is more expensive than ever, so much in fact that more and more young adults stay in tenancy agreements until their early 40s.
Nevertheless, when you finally step onto the property ladder, you can’t escape one essential fear: did you bite on more than you can chew? Here’s how to ensure that your home doesn’t make you bankrupt.
Is your home too much for you? It is good to know what signs to look out for. As frugal people, we take every effort to make sure we are not spending more than we should on the home nor or anything for that matter.
Defining the real cost of your home
It’s easy to define whether you can afford to buy another pair of shoes or a better car. But it’s a different kettle of fish when it comes to dealing with a home purchase.
With prices well over what one can comprehend, it’s natural to wonder how much you can stretch your budget. Indeed, the real cost of your property is not the price of the house only. There are many other factors to consider before defining how much house you can afford.
For a start, the cost of moving and eventually the cost of maintaining your standards of living in a new location can’t be ignored. You will also need to think about keeping saving room every month for the emergency that could tip off your entire budget plan. Finally, if renovation work is necessary, it needs to be part of the final house cost.
No, you can’t just take a mortgage for a house you can’t afford
For a lot of new homeowners, defining how much you can afford to borrow for a mortgage is a tricky task. Indeed, while house prices may seem overwhelming, we, as a society, are trained to believe that with the right mortgage we could buy any property. Wrong!
It is the lender’s job to assess how much mortgage you can afford, based on the information you provide. It used to be based on a multiple of your income, namely between three and five times your annual income. Nowadays, this amount is capped at 4.5 times the income. Aside from your credit score, lenders also run a stress test of your ability to repay despite potential changes in your lifestyle.
What if I’m struggling to pay my mortgage?
Nevertheless, unexpected changes can still occur and make it more difficult for you to repay the mortgage. If you want to consider options to reduce your monthly repayments, you might want to get a new mortgage as a replacement.
This option to refinance home loan agreements allow a borrower to get better interest term and rate. This will take your current credit score into account. If you’ve been struggling with debts, it might have affected your credit score, which means you may not get an advantageous refinancing offer. Sometimes, the best way to pay for your home is to switch to a smaller home.
Indeed, if you do your homework, you could clear off enough money to repay your debts and reduce your living costs. To find out an estimate of how much you can get, there are websites like LowerMyBills that have refinance mortgage calculators. However, you should use these calculators with caution because how much you can actually get will depend on a lot of factors, like your credit score.
Avoiding unnecessary repair costs
The most expensive part of homeownership is by far the repair costs that occur throughout the years. Naturally, there are necessary repairs and renovation projects that you’ll need to plan. However, more often than not, lack of maintenance can lead to excessive costs.
Keeping your gutters clean for instance, while it’s not a pleasant job, can save you a lot of troubles especially if it gets blocked. Nobody wants a flooded home! I’m talking from personal experience here so that is why I always do these little things to maintain my home throughout the year. Maintaining your window frames can also avoid water infiltration risks. I paid quite a hefty sum to Evander Glazing a few years ago to come and sort my windows out. That’s what made me realize that I could save myself so much by doing the maintenance.
Budgeting for the necessary renovation
Admittedly, home maintenance can only go so far. There are necessary renovation costs that you need to have to keep your home in good condition. While these costs are unavoidable, with efficient planning, they can be easier to deal with. For instance, your roof has a lifespan of 15 to 75 years, depending on the type of roof. Knowing when the renovation is due can make a great deal of difference in your budget, especially as a damaged roof can affect your home structure and content significantly.
How much are you paying to heat your home?
Your energy bills have probably gone up since you first moved in. But with the right approach, you could be saving money on your bills. For instance, according to Ofgem, most people could save up to £300 just by switching supplier.
What are you waiting for? Additionally, improving your insulation system can also save you a lot of money. There’s no need to pay for heating if the warm air escapes outside! Finally, you can change your habits to use less electricity, simply by switching to energy-saving light bulbs and turning down your thermostat by 1°C.
The number one enemy of your household budget: Food waste
While energy bills seem like a money-greedy beast for homeowners, most households spend more money on food waste than on electricity. In fact, the UK throws away £13bn of food in a year. Food waste is important, as most households waste just under £500 of uneaten food in a year.
There is no secret, here. Planning more grocery shopping trips throughout the week can help to reduce the waste, as it forces you to buy what you need for the day and no more. Which products are more likely to end up in the bin? Milk bottles, especially if you’ve bought a large bottle but didn’t manage to finish it in time, and lots of bread, are the most commonly wasted food. Fresh fruits and vegs are not far behind. Food waste is expensive so find ways to be more frugal. Check my tips here.
When DIY can save you money
There are other cases of waste that you can avoid, such as calling in an expert to do a job that you could easily manage. Not everything can be a DIY task, but there is a lot that you can learn to do by yourself without risking to damage your home.
Bleeding your radiators, for instance, can help to improve your heating system and reduce unnecessary electricity costs. You can also learn how to fix a running toilet, as it’s not a high-skilled plumbing job and only takes a few minutes while it can save you a lot of money on your water bills!
Get your DIY tools ready and tell yourself that you can do it. Google and YouTube have great videos that show you how to do almost anything.
When DIY is NOT a good idea
However, even though DIY can seem like the cheapest solution, there are cases, where you should work with a professional instead. Indeed, a lot of homeowners turn to DIY to save money but might end up wasting money on it. For instance, most home insurance covers don’t include a DIY clause.
Hypothetically speaking it means that if your electrical renovation ended up setting the house on fire, you might not receive any compensation for your property. More and more insurers are rejecting water damage claims when the damage is the result of DIY plumbing work on the pipes. In other words, you should check with your insurer before starting any involving DIY project.
Be radical: change the country for a better home
Finally, if your home continues to bleed your bank account and you can’t maintain your living standard, there may be a radical but effective solution. Check the story of this American couple who decided to move abroad to start a new life and save money. They embraced a new opportunity and moved to Germany, without speaking the language or even knowing the culture. The result? They live in a bigger house for a third of the price, can go out without breaking the bank, and enjoy a better lifestyle.
In conclusion, from carefully considering your loan options to identifying the areas where you’re wasting your pennies, there’s a lot you can do to make homeownership more affordable and improve your lifestyle. And if nothing works, why not try moving abroad for a new start? We’ve given that a go and we are better off for it.
We built a new home out in the country and are committed to undergoing a proper maintenance schedule to keep it in good condition. I was a little shocked at how much this maintenance cost the first year – so my tip is to take note of all those costs like air conditioning servicing, gas heater servicing and so forth so you can budget for them properly going forward.
That’s a smart idea! And congrats on your new home.