“House Poor” – What It Is and How to Avoid It

If buying a home is a goal of yours, well-meaning friends and family may have cautioned you to avoid becoming “house poor.” This phrase is used to describe when someone spends too much on homeownership costs based on their income. This can happen at any income level, so it’s important to familiarize yourself with this concept regardless of your tax bracket. In this guide, you’ll learn the consequences of being “house poor” as well as concrete steps to help you avoid it. As a result, you can establish a positive homebuying – and homeownership – experience.  

The rule of thumb 

Generally, expert advice is to avoid spending more than 30% of your gross monthly income, which is your pre-tax income, on a home purchase. Staying at or below this threshold will help you stay on top of mortgage payments and have some leftover for short- and long-term goals.  

The consequences

Homeownership costs aren’t limited to a monthly mortgage payment. You must also factor in property taxes, maintenance, and utilities. Ideally, you would have enough money leftover for saving or even wants like a weekly night out or a streaming service. After all, you should be able to enjoy your hard work – and the roof over your head shouldn’t compromise that. 

The solution 

Crunch the numbers

You won’t know what’s affordable until you’re crunching the numbers using figures relevant to you. This makes online mortgage calculators invaluable to your homebuying success. Use them to gauge home affordability, compare mortgage loans, and see your debt-to-income ratio. 

Be realistic

It’s important not to go into the homebuying process with the mindset of, “we’ll make it work!” Part of this is keeping your calculations top of mind while shopping. Don’t entertain a walkthrough on a house that’s $50,000 over budget. You’re guaranteed to love the upgrades, but that doesn’t mean you can afford them now. Be realistic about your budget and stick to it! 

Look ahead 

Your finances may change over time, and it’s important to anticipate what, if anything, may change in the first few years of being a homeowner. For example, young couples who do not yet have children but plan to in the near future should consider the added cost of raising a newborn when coming up with a homebuying budget. 

Of course, there are some unforeseen circumstances that can’t always be planned for – like a sudden illness or job loss – that may require you to adjust your budget after the fact. This may involve limiting discretionary expenses, among other things. 

A great mortgage loan rate will make homeownership more affordable. Here at General Electric Credit Union (GECU) we aim to Improve the Quality of Financial Lives – and getting you in the door of the perfect home is part of that goal! View our competitive rates online, then fill out a form for more information and a GECU team member will get in touch. We’ll help you select the best mortgage loan option for you, as well as determine what’s affordable based on your financial picture.