You’ve probably heard the term “house poor”, but what exactly does it mean to be house poor, and how do you know if your house payment is keeping you from saving as much money as you could be?
The following post is by MPFJ staff writer,Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
You’ve probably heard the term “house poor”, but what exactly does it mean to be house poor, and how do you know if your house payment is keeping you from saving as much money as you could be?
Let’s start by talking about what it means to be house poor. There are statistical numbers that could indicate that you are house poor, but there are also other financial factors.
House Poor – by the Numbers
A recent study indicated that as many as 40 million Americans are living in housing they cannot afford, whether that be rental or owned properties.
You could consider yourself house poor if your house payment (principal, interest, taxes, insurance and any home equity loan payments) take up more than 40% of your gross (or even net) income.
A potentially more accurate way to figure out if you’re house poor is this: ask yourself if your house payment is so big that it is keeping you from saving money each month or causes you to struggle to pay other bills.
If that’s the case, you may be mismanaging your funds in many areas, or you may simply be house poor.
A standard mortgage lender doesn’t like to see a house payment take up more than 35 percent of a person’s gross income, although some lenders will go higher than that, especially on FHA loans.
But as we learned in the 2008 real estate crash, lenders aren’t always the best judge of how big of a house payment is too big. Instead, I ask you to consider these factors in determining whether or not your house payment or rental payment is keeping you poor.
You’re Having Trouble Paying Other Bills
Is your budget too tight? Do you sometimes struggle to pay utility, food and other bills? If so, take a look at your housing expenses and see whether or not they’re taking up a disproportionate amount of your income.
Financial expert Dave Ramsey suggests keeping your house payment at no more than 30% of your take-home pay.
You’re Having Trouble Saving Money
Your house payment (along with other bills) should be manageable enough that you are able to put away at least something in retirement funds and traditional savings each and every month – and leave it there.
If you’re not putting any money in savings, or if you’re putting money in but have to take some out again each month, your house payment could be to blame.
You Feel Weighed Down by Your House Payment
If your house payment or rental payment makes you feel stressed out and like you’re tied to a ball and chain many months, you might have too big a payment for your income and debt level. If this is the case, you may want to consider cheaper housing.
A house payment should never be so big that you feel stressed out when you make your monthly payment.
The good news about being house poor is that it usually doesn’t have to be permanent. In most cases, you can sell your house and buy a less expensive one, sell and start renting at a cheaper place or move in with loved ones temporarily until you find a more affordable home.
You may also be able to find a way to earn more income to make your house payment more manageable, such as getting a second job, starting a side hustle or getting a roommate to rent out a spare bedroom to.
Conclusions
Managing your house payment in a way that allows you to have more discretionary spending will help you save more money if you’re disciplined and will help you enjoy life more in general. It’s never fun to struggle to make ends meet.
***Photo courtesy of https://www.flickr.com/photos/teemu08/13787849704/in/
