House Poor?
Realtors usually don’t deliver the best news. Everybody who wants to buy a house, wants to buy the best house in the best neighborhood for the best price. That usually involves someone maxing out the payment they can afford. You may be tempted to stretch your budget and buy that larger home with the bigger yard, but remember: The more you spend on housing, the less wiggle room you’ll have in the rest of your budget. Not only that, but overspending on housing can get you into serious financial trouble. According to a report by the MacArthur Foundation, between 2011 and 2014, more than 50% of Americans had to make at least one major economic sacrifice to cover the mortgage or pay the rent. These sacrifices arethings like delaying retirement savings or taking on credit card debt. If you’re not careful, buying too much house could cause the rest of your financial plan to take a bad turn.
How do we avoid being house poor? As a rule, your total housing cost shouldn’t exceed 30% of your income. This includes your mortgage payment, property taxes, and homeowners insurance. Yet in 2015, almost 12 million U.S. households spent more than 50% of their income on housing. If you stay under that 30% threshold, you’ll have more flexibility when an unexpected bill pops up. And unexpected bills have a tendency to do that. It may not even be as simple as buying more house than you can afford as people typically become house poor because they buy more house than they can afford.
There are other ways that people can become house poor as well. For example, some people will become house poor after the birth of a child, when one spouse decides to stay at home with the new addition, rather than going back to work. These types of situations should be taken into account when buying. Someone may have a job change or go on disability. Regardless of how the income drop occurred it will effect how much you are able to pay for a home and how much you are able to pay for repairs. Home maintenance can be costly. A/C units, new roofs, or a new fence are not cheap. Even a call to pest control can cost $200. If every repair is around $200, then they begin to add up over time. A homeowner shouldn’t be surprised when something breaks or doesn’t work how it is supposed to. Things wearing out or breaking is a fact of life.
Having a savings, not buying more house than you can afford, and anticipating situations can certainly help with being house poor. The term seems so negative and it is, however it can be used to teach us a lesson before we learn it the hard way. Real estate professionals are here to help with this. Most people go into house hunting with a certain expectation, the best thing to do is consult an agent and listen to what they have to say from the start. Remember that real estate professionals don’t make an income if they don’t help clients get into something realistic. Happy hunting and I hope this article helps someone make a great decision.