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2 Simple Ways You Can Avoid Being House Poor

1714284933_6bbda465dc_zOne of the biggest financial mistakes I’ve ever made was buying my house at age the age of 21.

I had just graduated from college and started working a full-time job back in my hometown. After viewing several rental houses I grew frustrated by their terrible condition and thus I started looking at houses that were for sale instead.

As I’ve said before, I love being a homeowner most of the time. But when I bought my house, I made the mistake of making myself house poor.

According to Investopedia, house poor is “a situation that describes a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance and utilities. House poor individuals are short of cash for discretionary items and tend to have trouble meeting other financial obligations like vehicle payments.”

With that in mind, here are two ways you can avoid being house poor.

Don’t Buy Too Much House

Buying too big and too expensive of a house is how m0st people, myself included, become house poor.

In my case, I was pre-approved for up to $120,000 to spend on a house. After viewing houses in my community at the $80-90,000 range, I knew I would need to spend more to get a house that was move-in ready and up-to-date. Unfortunately in my community there aren’t really any houses between that and the $120,000 mark, which is how much my house cost. I also didn’t have money saved up for a down payment or closing costs, which made my house loan more expensive.

Just because I was pre-approved for $120,000 and I faithfully make my payment each month doesn’t mean it hasn’t been hard to watch almost 45 percent of the income from my full-time job being used just for the mortgage and utilities each month – it is! I wish I had shopped around longer for a cheaper house or a rental in decent condition. A worst case scenario would’ve simply resulted in living with my parents for a few months while I kept looking for a place.

Don’t Be Above Downgrading if Your Income Drops

With all the job losses from layoffs and company closures in today’s economy, it shouldn’t be embarrassing to have to move to a smaller, older, or cheaper home in order to avoid being house poor.

Sometimes when people experience a job or other income loss, like a parent transitioning to a stay-at-home parent after the birth of a child, they continue to live in their expensive house even if they can’t afford it.

If the income drop is short term and you have an adequate emergency fund in place, this might work out just fine. But if not, you might want to  consider moving so you don’t become house poor.

Being house poor is not very conducive to helping you achieve other financial goals, like getting out of consumer debt, building an emergency fund, or saving for retirement. Plus when you are house poor the amount of money you can spend on fun things, like family vacations and more is also drastically limited.

 

 

Are you house poor? What other ways can you think of to avoid being house poor? How old were you when you bought your first house?

 

 

Photo courtesy of: Smart Destinations

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Kayla is a mid-20s single girl living in the Midwest, USA. She is focused on paying off her consumer and student loans, while simplifying her life and closet. You can join her on her journey at ShoeaholicNoMore or follow her on Twitter.

6 comments

  1. I am glad that I am not a house poor because I have patience. Not only that, I tried to build up my savings first before I began getting into buying a house. I assured that I was able to pay it off so that I would be debt-free. It really feels good to live in a house that you did not owe money from someone or not loan just to get it. Don’t buy more than you can afford.
    Jayson @ Monster Piggy Bank recently posted…Getting Your Car Washed and Cleaned By A ProfessionalMy Profile

    • I definitely made these mistakes. I was not patient, I didn’t have money saved up, and I didn’t think about how much of my income my house payment and utilities would eat up each month. Now I sometimes regret my decision.

  2. I want to buy a house, like yesterday, but I am trying to be patient. Where I live a lot of people are house poor and I am trying not to be one of them. I want to make sure I have sizable down payment saved before I start looking for a home.
    Sylvia @ Professional Girl recently posted…When you give youself lemonsMy Profile

  3. I think most people know that they shouldn’t buy too much house, even if they decide to do it anyway. But being willing to downgrade is an important point, Kayla. My wife and I were very careful to purchase our home well within our budget as we plan to be here for quite some time to come. However, if something were to happen where we could no longer afford it, even with our emergency fund, we have a downgrade plan in mind. I think one more way to avoid being house poor is to wait until you can really afford it. Meaning that you can afford the real estate taxes as they increase, the maintenance and repairs that inevitably crop up, the homeowner’s insurance, the HOA fees if applicable, and the other expenses that come with owning. I think too many people consider just the mortgage payment and current taxes without thinking too far beyond that.
    Gary @ Super Saving Tips recently posted…Simple Things Can Help Advance Your CareerMy Profile

    • I definitely made that mistake Gary! Not only did I buy too much house, I also didn’t plan for all the other expenses of homeownership. Luckily my taxes and insurance are part of my monthly mortgage payment, but the rest like maintenance and repairs, I didn’t account for at all.

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