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What Does It Mean To Be House Poor?

what to do when house poor

What Does It Mean To Be House Poor?

Getting into a house poor situation usually is the result of stretching ones budget in the hopes of some future promotion, bonus, or new (read pays more) job.  Other times it may be because there is a change it job situation or change in marital status and now what used to be enough earnings to cover the mortgage payment is gone.  Being in a house poor situation means barely being able to afford the mortgage on a home and as a result falling behind in important repairs and maintenance of the house.  There are some different options homeowners can consider when they find themselves in a house poor situation as discussed in this article below.

Figure Out What Fits Within the Budget Before Buying

It is easy to get carried away in the excitement of home shopping and start looking at homes before one has sat down with a mortgage lender to figure out what the monthly payments will be.  That is a sure-fire way to lead to disappointment when one finds that “house of their dreams”, the must have house which leads to stretching oneself to purchase that home.  Any home buyer should first determine how much mortgage they can get pre-approved for and then consider that monthly payment in terms of their monthly take home pay.  Stretching that budget because there is a promotion on the horizon or because of an expected new (higher paying) job while tempting, is a path towards being house poor.

New jobs and promotions are not guaranteed in life and just as easily as those promotions can come a homeowner can find themselves without any job for any number of reasons.  In the past it was common to keep the housing budget to no more than 20% of income.  These days some lenders are willing to push that to 36-40% of income which can lead to trouble down the line.

When looking at the numbers make sure to account for property taxes and homeowners insurance.  Taxes and insurance can be included in the mortgage payment where the lender requires it based on the downpayment amount, or where the buyer wants it to make sure taxes and insurance are paid for by the mortgage company.  So while the principal and interest payment of the thirty-year fixed mortgage will stay the same for thirty years, the taxes and insurance do not stay the same for a home.  In fact, insurance rates and tax rates have been going up for many homeowners who have recently purchased a home.  Homeownersplumbing repairs who bought at the top of their budget range are now facing a much tighter financial situation and their overall quality of life will suffer as a result of it.

Just because a homeowner is able to stretch a little to make the payments on a higher cost home, the added expenses that come along with owning a home will stretch the budget to the breaking point. Deferring costs on certain home repairs cost homeowners much more in the long run since not making repairs to something like a small roof leak now can lead to a larger cost later when rotted wood and drywall needs to be removed and replaced.  The livability of a home can easily be degraded with lack of maintenance.

Bill Gassett of Maximum Real Estate Exposure, a Realtor with many years of experience and expertise, shared this with me.
"Paul, it is common for some homebuyers to overstretch when buying a home. It has become especially prevalent in the heated seller's markets nationwide over the last few years.
Buyers are getting caught up in bidding wars and spending more than planned. It's essential to realize there are other expenses when buying a home besides mortgage payments, taxes, and insurance.
Even though a mortgage lender will qualify you at a certain spending threshold, it makes sense not to hit the limit. 
There are other expenses to consider, like buying groceries, filling your gas tank, and going out to dinner. You can avoid being house-poor by staying under your means. Sometimes, buying a less expensive home means a bit of a sacrifice, but it could be worth it."


If a homeowner has already purchased a home and find themselves in a cash crunch situation where paying for the upkeep of the home is challenging or the mortgage payments themselves are causing a strain, there are some options to consider:


Depending on how long the home has been owned for and how much of the mortgage has been paid off, refinancing the mortgage may be an option.  If there is a lower balance on the mortgage after having paid on it for a number of years, a new mortgage should result in lower payments providing the homeowner does not take on additional debt in the form of a cash out refinance.  If the interest rates are lower than the current rate on the mortgage that also could result in a reduction in the monthly mortgage payment.

For those who have just recently purchased a home within the last few years, if rates are up rather than down and the principal balance has not been reduced by much then a refinance will result in a higher monthly payment due to the higher interest rates.  In the situation where the home’s value is lower than when first purchased (whether for lack of repairs or market conditions) refinancing the mortgage may not be possible.  This will depend on how much equity is in the home and what terms a mortgage lender is willing to lend on.  The homeowner should consult with a mortgage lender to determine whether refinancing makes sense.

Bring in Roommates

No matter what anyone says, owning investment real estate is not passive.  Even when hiring a property manager to manage the property the owner will still need to interact with the property manager to make sure things remain on track.  Especially when bringing in roommates to help pay the mortgage, more attention will need to be paid to make sure everyone is happy.  For those with an unused basement or those who have space in the house where they can create an entirely separate living unit the ability to bring on a tenant to help pay the mortgage becomes easier.  

The homeowner needs to make sure the space they want to rent out meets all local building code requirements. Just because the basement is empty does not mean the homeowner can rent it out as a legal unit if it does not meet local requirements with regards to living standards.  Renting out part of the house that is not suited for being rented out under the law is the quickest way to get a visit by the local building authorities.  If the tenants complains about something to the housing authority, gets injured or worse short term rental desperate suffer loss of life because they could not get out of their living space in an emergency the homeowner will face harsh and expensive legal consequences.

Some owners with available space may also be able to rent out the space on a short-term basis using services such as Airbnb or VRBO.  The homeowner needs to check with the local zoning/building department with regards to any laws and regulations surrounding short term rentals.  There may be up-front costs associated with setting up a short-term rental and it is not something one does at the drop of a hat.  To do it properly and to get the best return the homeowner should research this option to make sure they know how to get the best tenants and deliver an experience the tenants are happy with.

Sell Your Home

Another option to get out from under the house poor situation is to consider selling the home and moving into something more affordable.  Timing is of the essence and selling before one gets behind on mortgage payments is a wise thing to do as it could save more money down the line by not having a credit score that has been knocked down due to late mortgage payments.  Getting another mortgage or even renting a place will become harder with a poorer credit score.  The homeowner should be looking at rent options and options for buying a most cost-effective home in this process to make sure they are going to a better situation.

If the homeowner has negative equity in the house selling can be more challenging.  The homeowner may need to bring cash to the closing table in order to close on the home.  If the homeowner does not have enough cash to bring closing, they should discuss with their lender the possibility of a short sale.  By getting out from under a house poor situation as soon as possible the homeowner can go onto rebuilding their finances.

In some states, where a short sale is pursued, the homeowner may still owe to the lender the difference between the purchase price and what the home was sold at.  Even if the homeowner does not owe anything to the lender, they may owe taxes on the forgiven debt.  Ideally the homeowner should be discussing their situation with an attorney to make sure their rights are protected, and the best path forward is chosen.

The alternative of short sale is more preferred over foreclosure as the homeowner may be able to buy another home sooner rather than later.  Even with renting a living space many property managers consider credit scores of their applicants as part of the rental approval process.  Foreclosures result in a larger reduction in one’s credit score as compared to a short sale.

Bottom Line

The best way to avoid being in a house poor situation is to make sure home buyers are only buying a home that is truly affordable from the start.  Stretching to buy a “dream home” can quickly turn into a nightmare money pit when the home can’t be properly maintained due to being unable to afford to do so.  Taking on roommates, refinancing the mortgage or even selling the home can prevent the homeowner from getting into a dire financial situation from being house poor.

Additional Resources

  • How Much Of A House Can I Afford? -  Buying a home means more than just being able to afford the monthly mortgage payment.  Owning a house means keeping it maintained and up to date.  Overspending on a home is a sure fire way to financial pain.  
  • Foreclosure Disclosure Rules - Once a homeowner has been through a foreclosure the impact on their credit is immediate.  How long does that foreclosure stay in place is another question that is considered in this article.
  • Home Affordability Calculator - Understanding how much one can afford to pay for a home is important so plug in the numbers for your area and determine what works for you.

About the author: The above article “What Does It Mean To Be House Poor?” 

was provided by Paul Sian. Paul can be reached at or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you.  Contact me today!

I service the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde ParkIndian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.

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