Buying the house of your dreams doesn’t necessarily mean you have to be house poor. You’ve heard the term before “house poor,” but do you know that you can avoid being house poor? Here’s how to avoid it.

Be Firm With Price Points

Negotiating to buy a home can become a situation where what you want can overshadow what you can really afford. You fall in love with the house of your dreams and bending on the outer limits of your set budget can easily happen. One way to avoid that is to firmly set those budgetary price points before you start looking. Be firm with your realtor that going above them is not an option. That will keep you from finding that perfect house that is just above your range and you are scrambling to figure out how to make it work.

Know What You Can Spend- Rely On Yourself

Next, don’t rely on a bank or realtor to tell you what you should spend on a home. Remember all those people who did and are now underwater or were foreclosed because they believed lenders or Realtors assurances that their calculations were right, they really could afford it? Don’t become one of them.

Get pre-qualified for a mortgage and then look below that pre-qualification number. Just because you can qualify to get a $300,000 mortgage doesn’t mean you should get a $300,000 home. Figure out the monthly payments on that pre-qualification amount and make sure that it is a number that you can afford… if nothing comes up or goes wrong. Leave yourself enough space in your income to debt so that you can save for those inevitable emergencies.

Do Your Homework

One way to be sure is to do your homework. A good way to estimate what you really can afford is to take your annual household salary and multiply it by 2.5 in order to get a figure for the price you can afford. Then take that amount and figure out what the real estate taxes and homeowners insurance would be and add those amounts to the monthly mortgage amount. Now, does it fit into your budget? If it’s too close to your last penny each month, you need to look for a less expensive home and avoid being “house poor”.