Have you been feeling panicked when the monthly bills come in? Maybe you see those mortgage payments and mentally add up everything else that suddenly needs to get done, like your HVAC maintenance and the washer just broke down. Again. If you're struggling to pay house related monthly expenses and your other obligations are suffering because of it, you are most likely house poor.
But don't worry. In this article, we'll not only tackle what house poor means for you now—we'll also discuss ways you can overcome it.
What does house poor mean?
House poor means that after you pay your payments associated with buying a home (mortgage, property taxes, repairs, etc.), your monthly budget is stretched thin enough that you have trouble making your other payments, such as to your credit card, and have little-to-no money for discretionary spending.
How do you become house poor?
When you go to buy a house, mortgage lenders will add up your debt-to-income ratio to see if you can afford the payments on your house. Often, they allow you to borrow enough that 25-30% of your income goes toward your housing payments alone.
While they include property taxes and your interest rate into that amount, they don't factor in the other items that come with purchasing real estate, such as home repairs, yard upkeep, utilities, and other bills that people who own a home pay.
You may have been able to afford the payments when you first got into home ownership. In fact, you were probably just excited to spend as much of your free budget as you could on furnishing your new home. But your financial situation may have changed, making it difficult to keep up with the payments.
You know you're house poor when you don't have the money after you pay your house-related bills to do what you want to do with it. This could mean eating rice and beans for every dinner (out of necessity, not just because you like them!) or having to choose between paying your house payment or car payment late.
How to Get Out of Being House Poor
If you are house poor, worrying about it won't help anything. Here are a few steps that you can take to get out of being house poor and back on the path of financial freedom.
Evaluate your situation.
Sit down and take inventory of your finances. Write down every debt you owe and every bit of income you have coming in. Make sure to factor in taxes and other bills that come around once every quarter or annually. Once you know what numbers you are dealing with, you can start making a plan.
2. Determine how long it'll be like this.
If you recently lost your job or are experiencing health issues that prevent you from working, consider your options. Are you planning on getting a job? If so, when do expect to get another job?
Your health may be what is keeping you from making your payments. If so, consult with your doctor to understand how long you will feel this way. If it's for an extended period of time, you may want to consider some more drastic money-saving measures.
Consider your options.
If you're going to be in this situation for a few years or less, you may be able to get by with a few budget hacks and some frugal living. Sound like you? Here are some ways you can cut your spending:
- Eat out less.
- Buy food in bulk and meal prep.
- Cut out unnecessary bills (maybe that cable package?).
- Have a game or movie nights rather than going out on the weekends.
- Take public transportation.
- Stick to a budget!
If you anticipate this financial situation sticking around for a while, you can do all of the above, but you'll probably have to go to more drastic measures, such as:
- Take on a side hustle. If you are unwell or have children to take care of, consider doing freelance work which can often get done at odd hours from the comfort of your home.
- Trade in your car for one with payments you can more easily afford
- Sell your house. While not ideal, if your house is getting in the way of you getting the quality of life you need, you may want to downsize or move to a more affordable neighborhood.
How to Avoid Becoming House Poor
Of course, there are ways you can avoid becoming house poor in the first place. Here are three important things you can do to guard yourself against house poor.
Determine what you can spend before buying a house.
Mortgage lenders may approve you for a house payment that is more than you feel comfortable spending each month. Before you go out looking for a home and fall in love with one at the top of your budget, set a budget.
Determine the amount you bring in each month and how much you can comfortably spend on house expenses (making sure to include utilities, maintenance, and taxes). You'll also want to set aside an emergency fund, just in case you lose your job or a big expense pops up that you'll need to have money for.
Take monthly inventory of your spending.
Like it or not, keeping track of your spending is a great way to make sure you don't rack up bills that you can't pay. Make sure you are making on-time payments to any debt you already owe, and budget to prevent credit cards from racking up a balance that your income can't carry. It may be a bit painful to sit down each month and go over it, but it's better than selling your house because you didn't keep track of your payments.
Talk to a financial advisor.
A house represents the largest item many Americans spend their money on. Because of that, it is important to talk to a financial advisor to make sure you are making enough money to cover everything you want to do. Discuss the options available to you and take heed to live by the advice you are given.
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