Buying real estate in Oshawa or townhouses for sale in Oakville isn't like purchasing a blouse or a coffee table. Homes retain much more of their value than household items, which quickly depreciate. Therefore a lot of people who are looking at real estate don't think of buying a house as spending money, since they still have the same amount of assets to their name. However, the money you have tied up in your home is generally not accessible if you need to buy food or put new tires on your car. So if you overreach during your home search you could find yourself suffering from a condition known as being house poor.
When you're house poor, you're spending so much of your money on meeting your Toronto home mortgage and property tax obligations that you have very little money - or even no money - left over for other things, such as transport, groceries, or entertainment. A surprising number of people suffer from this condition, but to look at them you would never guess that they were struggling financially because they have such a nice house and such high end possessions. Sadly, designer labels won't keep the bank from foreclosing.
And foreclose they will if you can't find some way to make your mortgage payments. In order to keep their houses, some people who are house poor will stop heating Stoney Creek houses, sell their cars, extend the lengths of their mortgages, or even borrow more money to pay the interest on their other borrowed money. None of these practices are sustainable, however, so short of winning the lottery or a sharp drop in their home's assessed value, these people are on the road to ruin, ending up being swindled in short sales or having their home repossessed.
The best way to keep yourself from becoming house poor is to work out your budget very carefully when you're first looking at buying real estate. Toronto MLS homes might be cheap now, but values will rise and so will your expenses. If you want to be safe, you should save up at least 20% of the purchase price of the home you want, and make sure your mortgage payments will not be more than 30% of your combined income. Be strong and stick to your budget - don't be tempted to bid more than you can afford just to have the home you want.
Of course, this advice won't be very helpful to you if you're already house poor. In this case, you need to accept that you cannot afford your current lifestyle and start downsizing. Sell your too-expensive home and buy one of the smaller residences of College Park instead. Do this as soon as you realize you're having trouble meeting your payments and you can avoid going further into debt or having to sacrifice your car and lifestyle.
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