What does it mean to be “house poor?” It’s the state someone is in when they purchase a home that they can’t truly or comfortably afford and are now in trouble financially because of that purchase. (This can also happen with renters!) This article will address three major aspects of house poverty: how to know if you are house poor, how to get out of house poverty, and how to avoid being house poor in the future.
Part I: Are You House Poor?
This will be the easiest of the three questions to answer. How can you know if you’re house poor? If you’re trying to find the answer to this question and what to do about it on the internet, that may be a good indicator.
But the best indicator is if you’re struggling financially and you know that you could be doing better if your mortgage payment wasn’t so high. According to a quote from Debra Neiman on Realtor.com, “if you can’t spend your income the way you want to because so much of it is going to housing expenses, you’re house poor.”
Part II: What Do You Do If You’re House Poor?
There are a few things you can start doing today to help alleviate some of the stress of being house poor, and there are some things you can start doing that may take you a bit longer to see results but are worth your time just the same.
Things you can start doing today include:
- Readjusting your budget. Look at your total income and where your money is going. Where can you move some funds around? What goods or services can you cut, cancel, or scale back on? Weigh the needs and wants of you and your family members. Can you put some of your fun money towards your mortgage? Or even just towards a power bill?
- Eat at home. Meal plan weekly and stick to a grocery list when you go grocery shopping so you don’t overspend. Try to use cash when possible to help you avoid impulse items. Pack your lunch for work, as well as the kids’ lunches if their school doesn’t offer a free lunch program. Buy store brand or generic products whenever possible.
- Free entertainment. Look in your community calendars for free events happening in your area that you can go to with friends, on a date night, or for a family outing. Watch the movies you already own, or if you use a service like Netflix already (that you’re not needing to cut out of your budget), watch movies or television using that service. Or borrow movies from a friend. Go for a walk or cook something as a couple or family, invite friends over for a board game night. There are so many ideas for inexpensive fun!
- Use what you already have or borrow from a friend. Don’t buy new things if you don’t absolutely need to. You can borrow a friend’s outfit for your date’s work party. You can look up a recipe for that one can of tuna that’s been sitting in your pantry for months instead of going to grab fast food for dinner. If you really do need something, try a yard sale or secondhand shop first. There are a lot of ways to save money!
- Look for little ways to cut down on costs. Be sure to turn the lights off when you’re not using them. Try not to run small loads in the dishwasher or washing machine – wait to start the load until it’s full. Or try handwashing your dishes or hanging your clothes out to dry a few times a week to save. Unplug electronics when not in use, switch to LED lightbulbs, and be sure to take proper care of your items. Don’t drive around unnecessarily and waste gas. It may not seem like much, but it can all add up over time.
Those are just a few tips that may help you begin your journey, or perhaps they’re the only ones you need if you’re budget is coming up just a little short each month. But if you’re in even deeper trouble financially because of your being house poor, then there are a few other things you can do that may take a bit longer or take more of your time, but are well worth it:
- Consider selling your home. The rule of thumb when buying a home is to not sell it until after you’ve lived in it for at least 3-5 years. This is a good idea, but it’s also entirely possible to sell a home after even just one year…especially if you’re drowning! Selling your home takes some time and energy, but if it gets you out of your house poverty and into a home or area you can comfortably or better afford, then it’s a good option.
- Consider a second job. Getting a second part-time job, even if only temporarily, can be a major relief on a family’s finances and can help get your head above water. However, depending on the situation this may only be a temporary fix and for some families, it may not be realistic long-term or at all. Consider costs of daycare, gas, and even family time when making this decision. Still, it may be a temporary sacrifice that needs making, but that’s a personal decision between you and your family.
- Refinance your home. While not always ideal, this is a possible option. Refinancing your home means you take out a second loan which pays off your original home loan. This can result in a lower interest rate or a smaller mortgage payment, which sound great, but again, this is not always possible for every person or situation. Be sure to visit your bank and seek out sound financial wisdom for your specific situation before jumping into this option.
Part III: How Do You Avoid Being House Poor?
Whether you’re recovering after having been house poor, or are a first-time homebuyer starting the hunt, the following tips will help you avoid the emotional, mental, and financial stresses of not being able to afford your home.
- Live below your means. Don’t overspend and go into the negative, and don’t spend everything down to zero. Give your wallet some wiggle room, stick to a shopping list, use what you have, and avoid excess or regular splurging.
- Know what you can – and can’t – afford. This not only applies to your monthly mortgage payments, but also involves your lifestyle. If you like going out to eat five nights a week, that’s fine, but make sure your house payment allows for that. Budget ahead of time, and know going into house hunting exactly what you’re willing to pay and what you refuse to go over.
- Don’t buy at the top end of your budget. Maybe you qualify for a home loan of $300,000…but you can still buy a great home at $200,000. You don’t have to go all out, and never go over your budget when it comes to a new home! In fact, avoid even looking at home that are above your price point. Let your realtor know this and stick to your guns about it.
- Keep what you have. It’s exciting to get new things for a new house, but chances are that most of – if not all of – your old things will work just fine in your new home. Keep that old couch until you can buy a new one in cash. You’ll still have fun showing your new home to friends and family even if they recognize a few familiar pieces of furniture or décor.
- Have an emergency fund in place. Before buying a home, make sure you have a decent amount of money set aside for possible expenditures that may come up, especially in your first year or two of home ownership. This can be anywhere from $500 to $5000 or more (a general rule of thumb for a solid emergency fund is about $1000), but make sure you have at least a little money set aside for unplanned expenses or unforeseeable situations.
- Know what made you house poor before. (If you’re a first-time buyer, this may not apply directly to you, but keep it in mind anyway.) Were you trying to impress people? To prove something? To keep up with the Joneses? If you became house poor due to a job loss, is this something that you could avoid in the future? Is it something that you’re prepared for if it ever happened again? All of these are good questions to ask yourself and to be aware of.
So there you have it: our quick guide to all things relating to being house poor. Hopefully these ideas and tips can help you no matter where you’re at on your home owning journey, or perhaps they can help out a friend who you know may be struggling with this.