Family of four standing in front of a house for sale

When you want to buy a house, it’s highly recommended that you do your research correctly and not make any buying decisions before understanding what you’re getting into.

Some prospective homeowners make inevitable mistakes that cause the home that’s supposed to be an asset to them to make them poor.

Homeowners that have become house poor find it difficult to cater to their monthly bills due to their exorbitant home expenses, and they often wonder what the best way to keep track of monthly bills is and how to avoid being house poor.

So, in this article, you will learn how to know if you’re house poor, what to do if you are already house poor, and tips to avoid being house poor.

What is House Poor?

To be considered “house poor,” a person must spend a sizable amount of their monthly income on housing costs. Mortgage, Insurance, taxes, maintenance, and utilities are all regular costs of homeownership.

All these expenses leave homeowners in no condition to suitably cater for their other fees or the talk of saving, planning vacations, or even planning retirement. Being house poor is synonymous with being house-broke.

Anyone can be house poor regardless of their income level. In as much you’re spending too much on owning a home and can barely afford any other expenses, you’re house poor.

It would be best if you didn’t joke about being house poor as it ruins your financial life. 

The Cost of Being House Poor

Image depicting costs of increasing housing

Once you realize you’re utilizing more than 28% of your monthly gross income on homeownership expenses, you should know you’re house poor. The cost of being house poor is very financially deleterious.

One perk of this is reduced savings. Having a home with more expenses than you can afford will leave no room for you to save for any of your other life goals. It will also get you into more debt than you ever dream of and affect debt repayment.

Due to a lack of savings caused by being house poor, you get into debt for the littlest and most significant thing, be it acquiring new furniture or replacing an old car.

Another cost of being house poor is that you won’t be able to afford to go on holidays or indulge in any other fascinating experience you derive pleasure from as you will always be cash strapped.

How Do I Know If I’m House-poor?

There are many ways to know if you’re house poor. The most obvious way you will know is that you are always cash-strapped.

Asides from covering your housing expenses, you’ll barely be able to cater for your other payments with your monthly income.

In ideal circumstances, your homeownership expenses shouldn’t account for more than 30 percent of your monthly income.

But for specificities, you need to know your total monthly income, including earnings from any side hustles you do, investments, or any other means you earn from.

After this, you may calculate your overall housing costs, and apart from the monthly mortgage, don’t forget to include property taxes, Insurance, utilities, maintenance, and upkeep expenses.

Once you know your total income and housing cost, you can subtract the latter from the former and see the remaining amount.

You’re perfectly fine if there’s enough left to save for emergency funds and cover your other living expenses. If not, then you’re house poor. Additionally, once you start withdrawing from your savings to pay your monthly mortgage or you can’t afford to have emergency funds or can’t even afford to go on holidays and vacation trips, you should know you’ve become house poor.

13 Tips To Avoid  Becoming House Poor

Outlined below are various tips you can adopt to avoid becoming house poor. These tips include:

1. Adequate Researching

Man thinking of the way forward by conducting proper research

Before purchasing a house, make sure you do very proper and adequate research. When you research well, you’ll be able to know what you’re getting into beforehand and how you can plan to avoid being house broke.

While researching, you should find out specific information like the amount of down payment you’ll need, what your monthly mortgage payment is, all the expenses associated with owning a home, and certainly added costs associated with purchasing a house like property taxes and Insurance.

2. Evaluate Your Financial Condition

To avoid being ultimately housebroken, you need to assess your financial condition and know your financial strength and weaknesses.

Be sure you can suitably afford a house within your means before purchasing one. Look at the debts you’ve got at hand and assess if it will do you any good financially to purchase a house at the moment. Make sure you know your financial capabilities to avoid being house poor in the long run.

3. Understand All Your Housing Expenses

Woman calculating costs and making budget estimates

As a homeowner, you should know about all the expenses related to buying a house because there is more to housing expenses than down payments and closing costs.

Make sure you find out and understand all household expenses to avoid an impromptu financial burden. For example, you should know that besides your mortgage payment, there are property taxes, Homeowners Association (HOA) fees, Insurance, utilities, and maintenance costs.

If you know about all these expenses while buying a house, you can plan how much your monthly expenses would be and avoid any unnecessary financial worry.

4. Proper Budgeting

Proper budgeting and sticking to it can go a long way in helping you to avoid becoming house poor. No one knows your financial strength more than yourself; thus, after evaluating your financial condition, you’re the best person to budget for the kind of house you can afford.

Also, you can factor all your housing expenses into a household budget, including utilities and maintenance. Thus, when you’re house shopping, you stick to your house-buying budget as real estate agents can try to derail you by showing you houses much higher than your budget.

Once you know the amount you can afford for a house and stay within your price range, you will be able to avoid being house poor.

5. Select The Right Mortgage

Image depicting housing mortgage rates

It’s essential to research and understand all the mortgages available, so you can pick the best mortgage and prevent becoming house poor.

There are different types of mortgages you can select from, and make sure you’re getting the best deal from whichever one you choose. You should also know how mortgage interest works.

If you go for any of the best mortgages that are available, it will save you money and prevent you from becoming house poor.

6. Making A Large Down payment

Another way to avoid being house poor is to make larger down payments when buying a home. This will significantly decrease the amount you will need to borrow, and as a result, your monthly mortgage payment will be reduced as well.

Although numerous programs are put in place to make house buyers pay a small down payment, it will do you good to save more before buying a house.

This way, you will have a larger down payment, which will also minimize costs for you since you will likely get lower mortgage rates and decrease private mortgage insurance premiums.

7. Avoid Over-financing

You should never over-finance. It’s better to under-finance as this will save you from a lot of financial worries.

You don’t necessarily need to take the highest mortgage you qualify for. However, financial experts highly recommend that you always go for the mortgage type you need. So avoid going for the most significant loan a lender can approve. Rather go for the amount you need after making the most important down payment possible.

Also, do not over-finance ahead of time with the money you may not have. Instead, always stick to a plan in favor of your current earnings.

8. Set Aside Emergency Funds

One can’t overestimate the benefit of savings. So you should ensure you’re setting aside a portion of your income to save for the day when life hits hard.

You should do this intentionally and specifically by removing a part of your income and having it waiting as mortgage payments or repair & maintenance bills in case of any unplanned situation.

With this, you can’t be house poor as you’ve already planned for the unknown.

9. Don’t Inflate Your Living Expenses

It’s good to live within and beneath your means. With any form of an increase in income due to a raise, side gig, or even getting a better job, you should resist the temptations to increase your spending. Instead of living a luxurious life with your increased earnings, saving this money and putting some in your emergency fund for housing expenses is better. 

10. Have A Backup Plan

Image depicting an alternative option

No one plans for the unfortunate side of things, but it’s better to be safe than sorry. You may lose your job on a whim or become unable to work due to a sickness or disabilities, and this may cause you to go house poor, so it’s better to have a backup option to fall upon in situations like this.

So, make sure you’re choosing the right property that has a good resale value so it can quickly attract potential buyers if need be.

Also, it’ll do you good to have any other plans on the ground to buffer things up when something terrible happens.

11. Avoid House-Hopping

House hopping is a situation whereby a person buys a home with the hope of living in it for a short term while it appreciates in value and then sells it afterward and moves to another house.

House hopping is not good for finances, as it tends to leave one house poor. This is because most individuals do forget to put in certain expenses like realtor fees, closing costs, moving costs, repair costs, and many other expenses. Ordinarily, these costs reduce the amount of money that was earlier thought of as profit.

So it’s better to consider these expenses before house hopping or avoid it overall.

12. Purchase A House Only After Repaying Other Debts You Have

House owners with a lot of debts, primarily consumer debts, find themselves house poor at the end of the day. This is because they have little money left to cater for their expenses after deducting homeownership expenses and all the other debts they have to repay.

It’s good to repay or minimize your debts before you purchase a home, as this will improve your credit score and, at the same time, lower your mortgage interest rate.

13. Boost Your Income

Increasing your income is another tip to avoid being house poor. You can boost your income by picking up any of the numerous side hustles available to earn money on the side apart from the income you get from your full-time job. 

This way, you’ll live comfortably within your means without worrying about being broke.

There are a lot of lucrative side gigs you can engage in online and offline. Then, all you have to do is research for one that’s not too time-consuming.

What You Can Do If You’re Already House Poor

Outlined below are tips to adopt if you’re already house-poor.

  • Cut down your living expenses

If you are house poor, it’s better to start tracking your monthly bills and see how you can cut costs.

You can save money by doing things you used to pay for, like mowing and doing minor home repairs yourself.

You can also decrease how often you dine out and cut back on traveling as they’ll help you in the long run.

  • Refinancing your mortgage

If you’re already house poor, you should consider refinancing as it will reduce your monthly mortgage payment, the interest rate, and the length of your mortgage.

  • Find means to increase your income

You can achieve this in a number of ways, including searching for a higher-paying job, picking up a second gig, renting out a spare room in your house, or selling unwanted possessions. As a result, your income will go up, and you won’t have to worry about being house-poor anymore.

  • Consolidate debts

You can also come out of being house poor by adding all your outstanding debts to become one. This will decrease the number of payments and interest rates you’ll need to worry about.

Although consolidating your debts lowers your monthly payment and gives you extra cash for your living expenses, you might end up paying an increased total amount spanning the debt repayment time.

  • Downsizing

It’s better to live comfortably in a smaller house than to be house poor in a bigger house. So, if you’re house poor and can no longer comfortably afford your home, it will do you good financially to try downsizing.

Frequently Asked Questions On Being House Poor

These are several questions asked by people who want to know more about being house poor. I’ll recommend you continue reading to find them out. 

What is the 36 rule?

The 36 rule is a financial regulation used to determine the amount of mortgage one can comfortably afford.

It states that one should not use above 28 percent of your pre-tax monthly income on your overall housing expenses and not above 36 percent on your total debt, including credit card, car loans, and student loans.

At what point are you house poor?

You become house poor at the point at which the most significant portion of your total income goes on homeownership.

At this point, you won’t have enough cash to afford your regular living expenses, not to mention saving.

What is house poor in Canada?

House poor in Canada means after paying the homeownership-associated bills, and there’s little money left for other expenses.

Some Canadian homeowners may live in their dream home and still be house poor due to financial struggles or poor decisions.

How much of a house can I afford if I make $70,000?

Woman thinking and calculating costs

If you make $70,000, you should be able to afford a house worth $260,000 to $350,000, depending on your outstanding debts, the type of home loan you get, and the area you live.

With this, your monthly mortgage payment will likely be around $1,500 to $2,000.

How much of your income should go to a mortgage?

It’s highly recommended that you should spend around 25 percent of your income on your monthly mortgage payment.

Some experts also advise that only 35 percent of your pre-tax income should go to your mortgage.

Moving Forward

Avoiding becoming house poor should not be taken lightly if you want to live without financial worries, and we’ve provided you with the tips to make it easy.

And if you are already house poor, the ways to turn things around are listed above.

You should know the price range you can suitably afford for your house, purchase, and stick to it. Don’t go for homes over your budget with the hopes of increased earnings in the future.

Make plans on what you have at hand and live a modest life to avoid inflating your lifestyle.

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