What It Means To Be House Poor

What does it mean to be house poor? We’ll give you a hint: it doesn’t mean that your house is in poor condition. It means you are, financially speaking that is. When someone can no longer afford to live in the house that they’re mortgaging and are relying too heavily on credit, they can be considered house poor. Not only that, it probably means that their level of debt is through the roof. If you are in a situation like this, fear not, there are ways that you can get out of being house-poor.

At Rebound Finance, we know how important your dream home is to you. However, we don’t want to see you stuck under a pile of debt and we certainly don’t want you to end up house poor, but if you feel like it might be a possibility, we have a few suggestions that you can use to make sure it doesn’t happen.

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How to Tell if You’re House-Poor

So, as we said earlier, having house poor status pretty much says that the home you currently reside in is causing you more debt stress than you can handle. There are a few different questions that you should ask yourself before you decide to reassess your living situation, such as:

  • Have you built up a lot of credit card debt?
  • Do you typically use those credit cards for the majority of your necessary purchases, like gas and groceries?
  • Do you often suspend family vacations or other travel plans in favor of paying off your mortgage?
  • Are struggling to scrape together any savings to deal with property and school taxes? Does it take you months to do so?
  • Do you need to spend more than 30-35% of your income to finance your housing needs?
  • Are you stressed on a regular basis about how much your home is costing you?

Remember, everyone has a different financial situation to deal with. So, it’s crucial to take your own financial condition into consideration when thinking about how best to approach your house issues.

Reasons You Might Be House-Poor

The first and foremost reason why some people end up house poor? They buy a house that is way too pricey and don’t consider the other expenses they’ll need to cover in the long run. For every problem, there is usually a solution, however, there are a ton of other ways that you or anyone else can find themselves in debt when living beyond their means.

Letting Your Lender Tell You How Much House You Can Handle

An important thing to know when purchasing a house is that your mortgage provider will approve you for a specific sum of money. However, remember that no one is forcing you to buy a house that is so expensive you’ll need to use all of that money.

When you’re working a job with a favorable income or salary, or are in a relationship wherein both partners have high enough earnings, it’s probable that your bank will agree to give you a large sum for your mortgage. However, just because you have all that money at your fingertips, doesn’t mean you should go spending it right away.

Before you decide to purchase a house, take the time to think about a realistic budget. Even if your lender lets you borrow $450,000, this shouldn’t be an excuse to look at houses that cost that much.

Reduced Income or Loss Of Employment

Something else extremely important to consider is what will happen if you should ever become unemployed. Nobody likes the thought of getting laid off, but unfortunately, it does happen. Therefore, when you’re in the market for a house, always ask yourself first: if I become unemployed, will I have enough money to continue living in that house until I find another job?

With every paycheck you get, it’s always a smart idea to set aside a portion of it in an emergency fund, just in case anything should go wrong at your job, and you need to continue dealing with your mortgage during a period of unemployment.

Lack of Savings or Emergency Money

There is pretty much no way to get around the expenses that come with owning a house. Not only are you going to be dealing with your mortgage, but there will also be a slew of other costs that you’ll need to take into account. This is something a lot of people don’t realize, which can often cause them to purchase a home that they can’t realistically afford.

As we said earlier, having some savings put aside can make things easier on you during an emergency situation, or the sudden loss of your job.

A Large Amount of Consumer Debt

When you’re looking to buy a house and acquire a mortgage with it, having a ton of consumer debt on your shoulders can really cause problems for your finances, especially when you’re already using a large portion of your earnings to pay it off.

So, the best possible thing you can do before trying to get approved for a mortgage is deal with whatever amount of consumer debt you have right away. True, this might not be the most satisfying option when you had your heart set on that house, but trust us when we say that straightening out your finances first is the smarter choice.

How Can I Stop Myself From Becoming House Poor?  

The solution? Make yourself a budget first and only look into buying a house that you’ll absolutely be able to deal with financially in the best and worse case scenarios. In addition to that, here are a few other tips you should consider following.

  • It’s important that you do not spend more than 30% of your total family income on a house. However, it really depends on how much income you make in the first place. So, calculate what 30% of your income is, and see if it will be realistically affordable. If possible, it’s always a good idea to aim for a lower percentage.
  • The next step is to get an estimate on what the cost of living will be once you’ve found a house. Remember, these expenses will include more than just the cost of your mortgage. You need take property and school taxes, the cost of utilities, home insurance, and property upkeep and repairs into consideration.
  • The next expenses to consider are those you’ll only have to pay once, during the moving process, such as the down payment and the fees associated with the closing of a real estate transaction. These costs can also include moving expenses, as well as for any repairs that might need to be made right away on the house.
  • Then there are the other expenses that might not pertain to the house itself, such as the cost of owning a car (gas, car insurance, etc.) or taking public transit, paying for health care, your cell phone and internet bill, groceries, etc.
  • Before you jump the gun and buy a house, take a trial period, and try to get by using this new budget you’ve made. Once you’ve taken the extra time to reflect on things, and gotten used to living on this restrictive program, then you can start looking at houses.

Take Your Time and Think Things Over

No two people are the same when it comes to their incomes, budgets, and levels of debt. Yes, most lenders will tell you that when you’re making a decent living, spending 30% of your monthly income on your mortgage is advisable. However, remember to take that suggestion with a grain of salt. Purchasing a house is very costly and if you want to avoid becoming house poor, you need to take every expense into consideration.