If we would have bought a house for that amount, I’m sure it would have led to us being house poor. While this may not seem like much to some, in the St. Louis area this can get you a good starter home.
This $150,000 number seemed high to us because we were quite young when we were pre-approved (we bought shortly after we turned 20) and we both had mediocre jobs. Yes, we were both working full-time but our yearly salaries put together were still very low and I definitely do not think we should have been approved for $150,000.
That being said, we thankfully did not buy a house that was $150,000. Instead, we made sure to buy a house for much less than that because we didn’t want to be stressed out by large monthly mortgage payments that we couldn’t afford.
In case you don’t know what “house poor” means, it is when you spend most of your money on your home and there isn’t much left for other expenses.
Being house poor can lead to many problems in your life. While having a roof over your head is a great thing, it can be easy to let home expenses get ahead of you if you don’t do enough research before you buy.
Many people are house poor too. Just because your neighbor has a nicer house than you does not mean that they are doing better than you. So many people see housing as a status symbol but don’t really think about how this may impact their financial situation.
Below are some of the many different ways being house poor can limit you. When buying a home, please keep the below in mind.
Being house poor may mean you can’t afford other home expenses.
Buying a home can easily lead to being house poor if you don’t do enough research. This can limit you because you may be even more house poor than you originally thought.
When some families buy a home, they don’t think about the total cost of homeownership. While you may be able to afford the monthly mortgage payment, you may not be able to afford anything else if you don’t do your research.
Some of these other costs include:
- Property taxes. Property taxes can vary widely from town to town. You may find yourself looking at two similar houses with similar price tags, but the property taxes may vary by thousands of dollars annually. That is a LOT of money. While it may seem small when compared to the actual home purchase price, remember that you have to pay property taxes annually and a difference of just $3,600 a year is actually $300 a month for life.
- Home insurance. Home insurance can be cheap in some areas but crazy expensive in others. Don’t forget to look into the cost of earthquake, flood, and hurricane insurance as well as that can add up quickly depending on where you live.
- Maintenance and repairs. Even if your home is brand new, you may have to pay repairs, which is something that many don’t realize. No matter how old your home is, repair and maintenance costs will eventually come into play.
- Homeowners association fees. This can also vary widely. You should always see if the house you are interested in is in an HOA because the fees can be high and there might be rules you don’t like as well.
- Home furnishings. Furnishing your home can definitely be done cheaply, but I know some who buy huge homes but can’t afford to put anything in them, such as a table, a bed, and so on. Why have a $500,000 house if you don’t have any furniture?
Buying a home you can’t afford may mean you can’t pay for anything else.
If a lot of your money goes towards home-related expenses, this means you have less money for other things in your life.
This can prevent you from doing the things you want in life and can stop you from being able to reach financial freedom.
Being house poor may mean:
- You can’t retire when you want to.
- You can’t go on a vacation.
- You’re stuck at your job.
- Your finances may make you too afraid to reach your dream.
- You can’t afford the other things in life you want.
- You may never feel free because you feel stuck due to the large monthly payment.
Being house poor can lead to a significant amount of stress.
Banks many times approve home loans with monthly mortgage payments around 30% to 35% and sometimes even as high as 50%, and I personally think this is too high in many cases.
While in some cities this may be normal (such as New York City or cities in California), having a monthly mortgage payment that is less than the amounts above will make life much less stressful.
This is because the lower your expenses are, the less things like a layoff, a firing, a large unexpected expense, and so on will impact you both mentally and financially.
If a high percentage of your income goes to home expenses, just think about how significantly you may be impacted if all of a sudden you made less money or if your monthly expenses suddenly increased. What if all of a sudden your home expenses consisted of 50% or more? What would happen?
Even when my monthly mortgage payment consisted of around 25% of our monthly income, I still didn’t like that. For me, I prefer to be 20% or under and I believe that is a good percentage for others as well.
Like I said, depending on where you live this might be hard but I do think the lower the percentage, the better.
If you are house poor and want to change your situation, I recommend the posts below:
- A Complete Guide To Renting A Room For Extra Money
- How To Live On One Income
- Ways To Make An Extra $1,000 A Month
Are you house poor? How much does housing consist of in your monthly budget? What tips do you have for someone who is interested in buying a home?
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