Owning a home has long been the American Dream, but these days, far too many people are pushing themselves too hard to attain it. It's estimated that 39 million Americans can't actually afford their homes, while more than half the population has been forced to make major financial sacrifices to keep up with housing payments.
No matter what sort of property you're sitting on, there comes a point when you need to take a step back and decide if the cost of ownership is worth it. If you're thinking of downsizing to a less expensive home, here are a few signs that it's the right move for you.
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1. Your mortgage, insurance, and property taxes exceed 30% of your take-home pay
Taking on too much house is one of the easiest ways to set yourself up for disaster. When you overspend on housing, you make it harder on yourself to save money, and you give yourself limited wiggle room when unplanned expenses arise.
So what's considered too much house? Generally speaking, your mortgage, insurance, and property taxes combined shouldn't exceed 30% of your take-home pay. If you find that they do, then it's time to consider downsizing and freeing up some much-needed room in your budget.
Keep in mind that it could be the case that your housing costs weren't always excessive, but have now reached that point because your circumstances changed. For example, if your family lost one income when you or your spouse decided to stay home and raise kids, then that could be enough to drive your housing costs above that 30% threshold. Still, it pays to be realistic about your situation. If that income drop is temporary and you have savings, then you might manage to hold off. Otherwise, consider getting out before you find yourself headed for financial ruin.
2. Your maintenance and repair costs keep climbing
The average U.S. homeowner spends anywhere from 1% to 4% of his or her property's value on annual upkeep. But if you find that your costs are exceeding the upper end of that range, it may be time to move to a smaller home that's less costly to keep standing. Review your bank and credit card statements for the past two years, see how much your home costs you to maintain, and decide if that figure is reasonable. If it isn't, then you'll want to consider a move.
3. Your housing costs leave no room for savings
Maybe your housing costs don't exceed 30% of your take-home pay, and your maintenance costs are minimal. But be that as it may, if you find that you're not saving money month after month, and housing constitutes your greatest monthly expense (which is the case for most people), then you may need to work on trimming that figure.