How To Avoid Becoming House Poor

Dated: 05/03/2017

Views: 120

                                                        

What is “House Poor”?

House poor is when your house payment exceeds 40% of your monthly budget. What’s interesting about this number is that many mortgage companies today will happily lend a borrower with good credit and minimal debt a housing loan with a payment equal to as much as 45% of one’s gross monthly income. So, in many ways, the industry sets borrowers up for failure.  Therefore we as consumers must take control of our own financial decisions. We must determine for ourselves what size of house payment we are comfortable with and what size of house payment will put us in a position to weather financial storms and come out financially safe on the other side.   That being said, here are some things you can do to avoid becoming house poor or to change your housing situation if it is already leaving you financially strapped.

Therefore we as consumers must take control of our own financial decisions and destinies and determine for ourselves what size of house payment we are comfortable with and what size of house payment will put us in a position to weather financial storms and come out financially safe on the other side.   That being said, here are some things you can do to avoid becoming house poor or to change your housing situation if it is already leaving you financially strapped.

Determine a Budget Limit on Your Housing

Many finance experts say it’s safe to go up to 40% of your monthly budget for housing costs. Financial guru Dave Ramsey sets an even more conservative housing budget of 25%.  You must know what is most comfortable for setting budget percentages for housing costs, but it’s safe to say that the lower the percentage of your income that goes toward housing costs, the more aptly you’ll be able to handle a shift in income, whether it be due to a job layoff, divorce or some other reason. When setting the percentage you’re comfortable with for a housing budget, be sure to leave room for income variance factors so that a sudden or unexpected change in income won’t leave you struggling to make your house payments. The more wiggle room you leave in your budget as you plan for housing costs, the better able you will be to handle income changes, rises in property taxes, home repairs and the like so that you can avoid being “house poor”.

The importance of an emergency fund

Another way to avoid becoming house poor is to make sure you’ve established a healthy emergency fund. Six to twelve months of income is ideal, especially if you’re taking on a larger house payment, but at a minimum, you should consider having three months’ worth of income in your emergency fund. The bigger your savings cushion, the more options you’ll have should you face a loss of income for some reason. So before you buy that house, make sure you set aside a nice emergency fund cushion to prepare for unexpected expenses or a decrease in income. If you’ve already purchased your home, make accumulating a healthy emergency fund a priority by selling unneeded items. Or you may consider temporarily getting a second job.

Latest Blog Posts

Tips To Interviewing A Buyers Agent

Buying a home is not the same as selling a home.  The process is different, the feelings you experience are difference, and the emotions are different.  Since buying a home is different

Read More

4 Reasons NOW Is The Time To Buy A Home

If you're considering buying a home, ask any real estate agent worth their salt and they'll tell you: NOW is the time to do it.The real estate market is seemingly changing by the day, and if you

Read More

8 Issues Sellers Should Address BEFORE The Home Inspector Does

You've received an offer on your home and you're thrilled at the prospect of getting the deal done. But first you need to make it through the next hurdle: the home inspection. In most real estate

Read More

Costs Involved With Buying A Home

Budgeting for buying a home can be difficult enough when you're just weighing mortgage options and a purchase price. But there are many other factors that go into the cost of home ownership. Some of

Read More