The term “house poor” is a growing concern as the cost of homeownership continues to rise across the country. Simply put, being house poor means spending so much of your income on a home that you can’t afford other normal living expenses. Unfortunately, this can lead to anxiety, financial stress and ultimately a cycle of debt. By learning the signs of being house poor and how to avoid it, you can save yourself from the headache and heartache of a poor home investment.
What is House Poor?
House poor is a term used to describe someone who spends so much of their income on their home that they can’t afford other everyday expenses. Simply put, it’s when you feel “financially trapped” with a monthly mortgage payment that makes it hard or even impossible to save money, pay off credit card debt, or even take the occasional vacation.
The Signs You’re House Poor
It can be difficult to recognize the signs of being house poor until it’s too late. Below are some of the H signs that you may be heading down the path of house poor:
• Living paycheck-to-paycheck: If you’re constantly relying on your next paycheck to pay next month’s mortgage, that’s a surefire sign you’re house poor.
• No emergency fund: If you’re unable to set aside money each month for an emergency fund or savings account, that’s a sign that you may be over-extended.
• Paying minimums on credit cards: If you’re stretched so thin that all you can do is pay the minimum on your credit cards every month, it may be time to make a change.
• Cutting back on necessities: If you’re equating cutting back on necessities like food, clothing, and other necessary items to make your mortgage payment, then you’re definitely feeling the pinch of being house poor.
• Using home equity to finance lifestyle: If you’re tapping into the equity of your home to finance vacations, new cars, or large purchases, you’re on the path to becoming house poor.
How to Avoid Being House Poor
To avoid being house poor, it’s important to be realistic when purchasing a home and to plan ahead. Here are a few tips to help you stay out of the house poor cycle:
• Have an Emergency Fund: A key factor in avoiding house poor is to always have an emergency fund. You should always have at least three to six months of living expenses set aside in an emergency fund or savings account in case of job loss, medical bills, or other unexpected expenses. This will ensure that you’re prepared for the unexpected while still being able to make your mortgage payments.
• Calculate Your Monthly Housing Costs: Calculate your total monthly housing costs, which includes your expected mortgage or rent payment, property taxes, insurance, utilities and other related housing expenses. Once you have this number, divide it by your gross monthly income. Multiply this number by 100 to get the percentage. It is generally recommended to not exceed 28% of your gross income for your total monthly housing costs.
• Consider Extra Expenses: When buying a home, make sure you factor in unexpected expenses such as repairs, additional insurance coverage and closing costs. Many people forget to consider these added costs when determining if they can afford a certain home.
• Get A Full Home Inspection: Before buying a new home, it is important to get a full home inspection to determine any issues that may need to be addressed in the future. Having a home inspection before you make a commitment can help you avoid costly surprises down the line.
• Have Plans For Home-Related Taxes: Property taxes can be quite expensive depending on the state. Make sure you research the property tax rate in the area you’re looking and have a plan to pay them when they come due.
• Work With A Professional: Lastly, it is important to work with a qualified real estate agent or broker to ensure you are getting the best deal on a house and mortgage rate. They can also help you understand your financial situation and make sure you are getting the best loan for your financial needs.
The term “house poor” is a growing concern as the cost of homeownership continues to rise across the country. Being house poor means spending so much of your income on a home that you can’t afford other normal living expenses. By recognizing the signs of being house poor and following the tips to avoid being house poor, you can protect yourself from the anxiety, financial stress and debt that this situation can cause.