The good news is that foreclosure rates are at a ten-year low (see statista.com). However, that doesn’t mean everyone is immune from foreclosure. I firmly believe that a row house is more than just a house; it’s a safe haven. It’s a protected place where your family may reside or a private refuge from an increasingly worrisome world. It’s a place where you are free to explore your creativity, whether that’s singing off-key or knitting poorly executed sweaters. Your row house doesn’t judge. Once you’ve found your special row house, you want to make sure you have a long relationship together.
What Is Foreclosure?
“Foreclosure is the legal right of a mortgage holder or other third-party lien holder to gain ownership of the property and/or the right to sell the property and use the proceeds to pay off the mortgage if the mortgage or lien is in default.” (see realestate.findlaw.com) Foreclosure occurs when you can’t make payments on your mortgage and fall behind.
How to Avoid Foreclosure?
One way to avoid outright foreclosure is to attempt a short sale. “A short sale, also known as a pre-foreclosure sale, is when you sell your home for less than the balance remaining on your mortgage. If your mortgage company agrees to a short sale, you can sell your home and pay off all (or a portion of) your mortgage balance with the proceeds. Depending on your situation, you may be required to make a financial contribution to receive a short sale.” (see knowyouroptions.com)
The best way to avoid a foreclosure is to make sure you can afford your home. The typical mortgage is 30 years. It’s difficult to know what life will be like for 30 years but you want to approach buying your row house from the perspective that your financial status will not improve over that time. Don’t buy a home for the person you think you’ll become, but rather who you are right now. If your income is $50,000 then that’s what you work with. If you’re starting out, chances are your income will increase. If you have student loans, chances are they will eventually go away. Should your financial situation improve, you will have more money to put into savings because your row house didn’t require an improved financial status. All the while you are in your row house, you will build equity in your home. Should you find things are going well, you can always upgrade or sell and move to a new row house.
Next, follow the rule of thirds. Your mortgage payment should aim to be around 28% of your net income (see forbes.com). The mortgage lenders will tell you that you can afford more but stick to your budget. Get a nice stable 30-year fixed mortgage. If you need to buy a cheaper house to do so, do it. Another third should go to monthly expenses and the final third to savings. As your debt is paid down, you can increase savings or, if you don’t incur a penalty, pay down your principle. It doesn’t hurt to speak with a financial advisor when making a big purchase like a home. They’re excellent at crunching the numbers and coming up with a plan that works for you.
When we were buying our row house, “100 Questions Every First-Time Home Buyer Should Ask” was an essential resource (see amazon.com). The book includes tables that help you prioritize your wants and needs, as well as figure out how much row house you can really, comfortably afford. I recommend working through the exercises in the book before looking at any row houses and bringing your requirements and parameters with you as you look at properties. Having a visual reminder of your financial situation will help avoid, or at least minimize, impulsive swoons and poor decisions.
What If I Can’t Afford the Perfect Row House?
Most of the time, being financially responsible means making compromises and sacrifices. For us, that meant choosing a very, very small row house (cottage) in one of the better neighborhoods. As they say, location, location, location. Making a wants and needs list helped us prioritize what really mattered, taking into consideration the lifestyle we lead. Sure, there have been challenges but we’re making it work.
It’s very rare that you’re able to buy a perfect house. There is always going to be something that needs attention. This adaptation of your home is not a negative thing, though. Because your row house isn’t perfect, it allows you the opportunity and space to really make it your own.
Thanks for this. It’s good advice that for homebuyers, you should always see to it that your financial status will not improve and that you have to consider buying a house based on your current budget. Thirty years is a long time and a lot could happen, so it’s best to avoid this risk. This is one of the reasons why we are holding back on buying a rowhouse or a townhouse right now. We’re still undecided which one to go for, as I didn’t know there was a difference between the two until I read this page.
Hi Michelle. When we were looking, the lenders make you think you can afford a lot more than you actually can. We aimed to afford the house on one salary, which is good if you can manage that, although in the end, we went over our budget a little bit because we didn’t want to sacrifice the neighborhood. Do I regret that? Nope. We trimmed the budget in other ways. Thirty years is a long time. Lenders offer a 15 year mortgage which speeds things up a bit. One thing to keep in mind when house shopping is the total monthly expenses of owning versus renting. There’s going to be maintenance which is better if you can contribute to a separate savings account for that. Using savings is better than a high interest loan or line of credit. Then there are things like water and garbage, which you don’t have to pay as a renter, typically, and any home owner association (hoa) fees. Both townhouses and rowhouses, as well as detached homes, can have hoa fees so you have to read the documentation to see if that’s applicable. Being in a historic area can also affect costs of renovations or repairs since there are rules to follow that will generally be more expensive. Your realtor, if they’re good, can tell you what the actual monthly costs, on top of your mortgage, should be regardless of the style of the house.