House Poor: What It Means And How To Avoid It
Author:
Kevin GrahamMay 23, 2024
•9-minute read
“House poor” refers to the situation where a homeowner buys a home beyond their means, and their new home becomes more of a financial burden than a positive investment. Struggling to keep up with housing expenses doesn’t leave a lot of room for fun or discretionary spending, either.
To fully enjoy life in your new home, you should figure out ahead of time just how much house you can afford, so you don’t end up house poor.
How Does Someone Become House Poor?
Buying a house can be an exciting prospect, but detrimental to your finances if something goes wrong or is overlooked. Home buyers can find themselves house poor if any of the following happens:
They Underestimate Their Homeownership Costs
First-time home buyers may simply not plan beyond the money needed to buy a house – the down payment and closing costs are just the start of the lifelong expenses of owning a home.
Meanwhile, the costs of owning a home can be significant, and you should include them when you’re creating your house buying budget. More than the monthly mortgage payment goes into buying a home.
Consider these costs of owning a home before moving forward with a home purchase.
Homeownership Costs
If you’re moving from an apartment or condo to a single-family house, you may be shocked when you get your first utility bill, which may be higher than you’ve been paying for a smaller home. You should also factor in costs like increased transportation expenses or services like landscaping or snow removal. There may also be trash pickup services to pay for, and you may need to purchase garbage cans as well.
If you have a lot of yard space, you’ll need items like shovels, rakes, wheelbarrows and household tools for basic lawn maintenance and repairs. It adds up quickly.
Property Taxes
Although these are usually included in your monthly mortgage payment, along with homeowners insurance in an escrow account, one of the important things to realize is that your mortgage lender is preapproving you based on an estimated initial property tax.
This is one of the biggest items that changes after you buy a home. Your home’s previous owner disclosed what they’d been paying based on the home’s assessed value. If you paid significantly more than their assessed value, your taxes rise accordingly because your purchase price becomes the new assessed value of the home.
Visit the website of the property taxing authority where your new home is located to find out exactly what your tax bill will be after purchase, whether there are any property tax rate hikes on the horizon and how often property values are assessed.
Homeowners Association (HOA) Fees
If the home you’re considering is located within a homeowners association (HOA), you’ll have to pay HOA fees in addition to property taxes and homeowners insurance. Unlike these other expenses, though, HOA fees aren’t included in an escrow account and aren’t part of your monthly mo