The terms “house poor,” “cash poor,” or “house broke” refers to situations where homeowners spend too much money on homeownership. The total cost of homeownership includes monthly mortgage payments but also includes homeowners insurance, utilities, property taxes, and upkeep and maintenance. Being house poor is far more common than you may imagine. According to a 2022 Consumer Affairs report, nearly 7 of 10 homeowners describe themselves as house poor. So how can you avoid suffering this same fate? Read on for tips to help you avoid spending too much money on homeownership.
Why Do So Many People Feel House Poor?
The same report revealed that 60% of homeowners underestimate the upkeep, repairs, and maintenance costs of homeownership. In fact, they underestimated so much that they report sacrificed items they deem essential to afford the maintenance costs. The specific costs of maintaining a home that most buyers underestimate include:
- Routine repairs
- Upkeep and maintenance
- Homeowners Insurance
- Property taxes
- Mortgage insurance premiums
- Significant repairs
A Proper Budget is Essential
The best way to avoid becoming house poor is to buy a home that you can afford. To that end, you should never deplete all of your savings to make your down payment. You should also work closely with an experienced mortgage broker, your accountant, and your financial advisor or wealth management team to determine exactly how much you can comfortably afford. You’ll need to weigh the pros and cons of fixed versus adjustable mortgages, and 15-year versus 30-year mortgages.
You’ll also want to know exactly what your insurance premiums will be each year. You should also overestimate, rather than underestimate the costs of running a household. Finally, make sure that you have an emergency fund set aside in case you need major work or repairs, such as a new roof, a new water heater, an HVAC system, etc.
Some experts recommend that total home ownership expenses be less than 36% of your gross monthly income. Known as your “back-end debt-to-income” or “back-end DTI,” this calculation includes spending 28% on your home and the remaining 8% on other debts or expenses.
What to Do If Your Home is Making You Cash Poor
To be clear, building equity is a great strategy for the future. You’ll be able to access that equity to invest in other properties, make renovations, or pay for other large expenses later in life. However, it takes time to build equity. So if you find that you’re feeling cash-strapped because owning your home is more expensive than you planned, there are some ways to lessen the strain.
- Limit spending (eat at home instead of dining out, limit coffee shop runs, etc.)
- Delay large purchases (cars, new flooring, bath renovations, etc.)
- Get a side job (side hustles are all the rage, and can be very lucrative)
- Look at options to refinance
- Sell your home
Oftentimes being house poor is temporary. A raise, a new job, a paid-off vehicle, or a credit card can often eliminate financial strain. However, if you cannot get to a better financial position, selling your home and buying a less expensive home can be very lucrative, as you’ll undoubtedly make money on the sale while reducing your monthly expenses.
Find a Home that You Love, and that You Can Afford in Lane County
If you’re ready to buy your first home, work with a local expert who can help identify the homes in the price range that can prevent financial strain. If you’re currently struggling with the cost of owning your home, and you’re considering selling, contact Taylor Made Real Estate today. Award-winning REALTOR® Xander Taylor will help you sell your home quickly, and for top dollar in Lane County. To learn more, send us a message or call 541-729-3632