Being house poor can’t be all bad, can it? It’s not like other debt, being house poor means that you have something valuable to show for it.
Being house poor is just as bad as any living beyond your mean behaviors.
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What Does it Mean To Be House Poor?
Let’s be clear – anyone can be house poor. You could make millions or minimum wage, it doesn’t matter.
A person is house poor when a large portion of their income is going towards their home and home expenses.
How to Tell if You’re House Poor?
The easiest – and most sure – way to tell is by checking your budget. You’ll be looking to see how much of your total income is going towards your home expenses.
Usually, your house payments should be anywhere from 25-30%. To find out your percentage, divide your monthly home payments by your monthly income after taxes and deductions.
You may notice other symptoms too. These can include living paycheck-to-paycheck, no savings, and struggling to pay other bills.
How Did This Happen?
There are two very common reasons for this to happen:
- A change in your income
- You bought more house than you could afford.
When your income takes a hit, it can affect everything in your life. This can dramatically change your home expenses percentage.
An income decrease could come from layoffs, illnesses, or loss of hours. But not all situations are as negative. It could be from maternity or parental leave or even going back to school.
For me, the bank we choose to get our mortgage through really wanted to ensure that we could afford our home. But I know that this isn’t the case for everyone. Some lenders don’t care as much as long as they think that people can afford it.
Some people will also have co-signers to qualify for a higher loan than they can afford.
The Risks of Being House Poor?
If not having enough money to do the “extras” is your only problem with being house poor than it may not seem that bad.
A lack of savings to take care of an emergency. That money will need to come from somewhere. You might end up skipping payments on something else or taking out a loan that you can’t afford to pay back.
Forclosure. The bank won’t let you keep your home if you aren’t making the payments. The last thing you’ll want is to have spent all that time with so little money just to lose it all.
Damaged Credit Score. Those other bills that you may not be paying could be reporting you to the credit bureau. And if you end up taking out loans to keep up with your payments, that will hurt your credit score too.
Bankruptcy. If your debt starts to get too out of hand, you may be looking at bankruptcy. You could lose properties, valuables, damage your credit score, and you could be still stuck with some of these debts.
Stress. Bad finances could really take a toll on your stress levels. Not only for yourself but for the entire family, your marriage and in some cases even your children could suffer the stress.
How To Fix It?
This may vary depending on your personal financial situation but here are a few options for you to consider.
01. Selling your home
Selling your home and purchasing a more affordable home. You’ll have to weigh out your options with this one. Depending on your situation, you could be looking at downsizing or even moving to a different neighborhood.
02. Making More Money
If you’re really stuck on the idea of keeping your home, you’ll need to increase your income. This could mean a stay-at-home parent going back to work, hunting for a job with a better income, or even getting a second job.
The best way to fix this situation is to not be in this situation in the first place.
While you can’t predict job loss, you can prepare for it. Start saving up so that you’ll have enough money to get by until you find another job. Try to aim for 3-6 months worth of living expenses.
Put as big of a down payment as you possibly can. The more money you put towards your home, the lower your payments for the home will be.
Don’t buy more than you can afford. Before you buy you should be looking at the final monthly costs that you’ll be paying. The bank will be able to give you monthly payment and you can ask the realtor if they can get you
While being house poor may not seem like a big deal, you could be only a few extra expenses away from financial ruin. Hopefully, you’ll be able to read this post and prevent this from happening. If not, consider taking action to get yourself out of this situation as soon as possible.
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