Have you ever heard of the term “house poor” before? It’s a phrase that gets tossed around quite a bit, but you might not be certain what it means or if it affects you. In this blog, we discuss the definition of being house poor, its main causes, and how you can avoid it.

What does the term house poor mean?

A person who is house poor spends much more money on their home than they can afford. This just includes the basics of actually owning a house, like mortgage payments, taxes, and utilities. It doesn’t include any upgrades or renovations, so we’re just talking about affording to live in the home as it is. The general rule is if you spend more than 40 per cent of your monthly income on these types of housing expenses, you are considered house poor. 

The biggest risk associated with being house poor is it takes away your ability to pay for other things. We have other essential payments in our lives, such as car payments, phone bills, and groceries. If you are using the majority of your money to afford living in your home, it will be harder to pay for these items. Plus, most people enjoy the occasional non-essential spending spree on entertainment, renovations, or dinners out. Unfortunately, a person who is house poor cannot enjoy these little pleasures nearly as much. The other danger is if your mortgage payments increase throughout your term, you might struggle to make those payments. This can lead to defaulting on your mortgage, and could eventually force you to sell your home.

How does it happen?

Becoming house poor often happens as soon as you purchase a home that is beyond your means. There’s a certain expectation for people to become homeowners, which can unfortunately result in home buyers taking the plunge before they are ready. Soon enough, the costs of homeownership become overwhelming, and meeting the payment requirements is a big struggle.

Another cause of being house poor is when people experience a major financial change throughout their mortgage term. Job loss, new expenses, or a change in the number of income streams can all reduce access to the funds needed for homeownership costs. 

How can you avoid it?

Make sure you’re ready for homeownership

To avoid being house poor, you should first be certain you want to enter the market as a homeowner. While buying a home often feels like the right thing to do once you hit a certain point in your life, the truth is we all reach that stage at different times. Sometimes, you might never feel a strong urge to buy a home either, and that’s okay too. There is no deadline for buying a home. If you’re not 100 per cent sure you want to become a homeowner, your best option is to hold off. The housing market will always be here for you when you’re ready!

Budget properly

Once you decide you want to buy a home, it’s essential that you create a proper budget. There are a lot of costs associated with buying a home, including your down payment, mortgage payments, taxes, and utilities. Remember, the goal is to not go beyond 40 per cent of your income to support all of these costs. You should do some research ahead of time and explore different property types and prices in the areas that interest you. The more accurate you can be with your budget, the easier it will be to find the right home once you enter the market.

Use a mortgage broker

Finally, let a mortgage broker help you with the buying process! The housing market can be confusing, and you may feel overwhelmed trying to work out the proper budget and buying plan for you. A broker can help you explore your options and narrow down the mortgage products that will fit your needs best. We can also make sure you stay within your budget, which is the best way to avoid being house poor as a homeowner.

The thought of being house poor is scary, but the good news is there are steps you can take to protect yourself. Carefully examining your finances, budgeting accurately, and using a broker will all help ensure you end up with the right property and product. 

If you have any questions about your mortgage, get in touch with me!