Those facing foreclosure have a unique challenge (1) how to manage their debts and keep their house and (2) how to prevent the threat of foreclosure in the future. The problem is that many people fail to look beyond a high mortgage payment to identify alternative sources of strain.
Many Factors At Play
People end up in bankruptcy or foreclosure for a number of reasons. Losing a job or experiencing a significant cut in salary are large contributors to financial hardships. The loss of a spouse or primary income provider also put severe strain on a family’s budget. Medical bills and time off of work only exacerbate an already broken budget, leaving many people with few options.
Despite the obvious factors that contribute to a lack of adequate income, a surprising number of home owners fail to account for extraneous costs associated with homeownership. The rule of thumb is to budget for 1% of the total value of the home to be spent on annual repairs. That means that a homeowner should have $2000 set aside per year, for maintenance costs on a $200,000 home.
Renovations and upgrades are also a necessary component of homeownership. The average home should have at least one renovation or upgrade every 5-7 years in order to maintain the value of the home. Although renovations and upgrades are necessary components of owning a home, it is never a good idea to pay for renovations with a loan. Many people finance home renovations and find themselves overburdened by a debt that could have been prevented had they saved up the money to pay for the work.