What does it mean to be house poor and how can you avoid it?

Buying a home is a major milestone, but it can become stressful if you're not careful. Being "house poor" means stretching your budget so far for a mortgage that you can't afford other essentials or pursue the goals that matter to you. When this happens, your dream home becomes a financial burden rather than a smart investment.

With the right approach, you can avoid this pitfall. This guide breaks down what causes people to become house poor, how to recognize the warning signs, and practical steps to keep your finances healthy while building equity.

What is the meaning of house poor?

Your home is a place where you’ll raise your family, welcome friends, and make memories that last a lifetime. A home can also be a major financial asset that serves as part of your wealth and investment portfolio. With that investment comes different expenses associated with homeownership, such as your monthly mortgage payment, as well as property taxes and insurance, utilities, maintenance, and (if applicable) homeowners association (HOA) fees. But when too much of your available income and savings is devoted to housing costs, you can struggle to have enough funds for other needs and goals. This is a condition called being “house poor.”

“House poor means you own a home, but you are stretched so thin financially that you can barely afford anything else,” says personal finance expert Andrew Lokenauth. “The mortgage is paid, but things like car repairs, medical bills, vacations, and retirement contributions all take a back seat. You have an asset, but you have little breathing room.”

Being house poor can create feelings of stress and anxiety around your finances and make you feel as if you’re only one setback away from financial disaster. These problems can even put a strain on your relationships and your mental well-being. It's also harmful to your finances, as it can lead to problems like increased debt, limited savings, inability to save for retirement, and the risk of foreclosure.

Common signs you may be house poor

You don’t need a house poor definition or a warning from a financial planner to realize that you are house poor. Red flags that you may be house poor include things like:

• Living a paycheck-to-paycheck lifestyle. “Here, your savings account barely moves. A single unexpected expense, like a broken furnace or leaky roof, can send you into a panic. You’re using credit cards to cover basic expenses. If these issues sound familiar, your house isn’t the asset you hoped it would be,” Lokenauth continues.
• Feeling stressed and anxious about money. It can be overwhelming when you experience financial pressure about an unexpected expense coming up.
• Needing to cut back or work more to pay the bills. Either scenario can stretch you thin.
• Relying on debt. Turning to credit cards and loans for short-term funds can create an accumulating cycle of debt.
• Lacking emergency savings. Not having a rainy day fund set aside can significantly limit your options.
• Sacrificing other financial goals, such as retirement. It may be years before you can say goodbye to your work life, but you want to ensure that you’ll have a nest egg salted away for retirement.

How does someone become house poor?

Being house poor doesn’t necessarily mean you are bad at managing money or neglectful of your financial responsibilities. But this status can be caused by several different scenarios. Let’s explore each.

Buying a home at the top of their budget

It’s a common mistake to purchase a home priced at the top of your budget and at or near the maximum borrowing amount a mortgage lender will allow. While it’s important to get preapproved for a mortgage before buying, mortgage preapproval doesn’t necessarily indicate what you can truly afford. You have to carefully consider your lifestyle, long-term financial goals, unexpected expenses, and other details.

Truth is, stretching your budget too far will reduce your financial flexibility. Purchasing a costly house can drain your savings needed for the down payment and closing costs, and taking on high mortgage payments will contribute to becoming house poor.

“Getting approved for a $500,000 mortgage doesn’t mean you should take that loan. Lenders approve you based on their risk, not your comfort,” says Lokenauth.

Underestimating total homeownership costs

It’s easy to be laser-focused on only your mortgage payment and upfront expenses. But the down payment and closing costs are just the start of the lifelong expenses of owning a home. First-time home buyers, in particular, may not plan beyond the initial money needed to buy a house. It’s easy to become house poor if you don’t properly account for the ongoing and incidental costs of homeownership.

Consider the following costs of owning a home before moving forward with a home purchase:

• 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 will 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 mortgage payment. That’s why they can be easy to forget until they become due. They also tend to rise over time. Additionally, there can be special assessments to meet major maintenance costs. Check the homeowners association meeting minutes for at least the past year to see if there are any plans for major maintenance on the horizon. If you fail to stay current on your HOA fees, you may face penalties and interest on those fees. If you don’t pay, eventually you’ll have a lien placed on your property, which will make it difficult to refinance or sell your home.
• Maintenance expenses. Something is eventually going to break in your home. While it’s impossible to know what, when, or where, you can make some educated guesses based on how old the home is and when major systems, the roof, and any included appliances were last replaced. Maintenance and repair costs are often between 1% to 3% of the purchase price of your home each year. Whether you can expect to be at the low or high end of that range typically depends on the age of your home. If you’d prefer to have a stable home maintenance cost that handles unforeseen contingencies, you may want to consider a home warranty.
• Other homeownership costs. Moving from an apartment or condo to a single-family house? If so, you may be shocked when you get your first utility bill, which could be higher than what you’ve been paying. 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. If you have a lot of yard space, you’ll need items like tools and equipment for basic lawn maintenance and repairs. All these items add up quickly.

Experience a change in circumstances

If you’re approved for a mortgage based on your monthly income, you could struggle to afford your monthly mortgage payments if you lose your job. Unless you can find new employment quickly, your finances may take a huge hit.

Other risks to your finances include decreases in earnings, unexpected and costly health issues, and divorce. Also, the costs of living in your area could go up suddenly, or the interest rates on your credit cards could rise.

For these reasons, it’s important you try to leave room in your budget for emergencies, which increase costs and the potential loss of income.

How to avoid becoming house poor

There are a few preventive measures you can take to prevent this financial scenario prior to purchasing a home. Here’s a roundup:

Know your budget well

If you’re thinking about buying a home, take time to create a realistic home-buying budget that factors in your income sources and also accounts for all post-purchase expenses. Include line items for things you don't want to give up, but also look for ways to cut nonessential expenses that can pad your bottom line.

“Run the full numbers before you ever look at a single listing,” Lokenauth suggests. “Be sure to include every housing cost – mortgage payments, property taxes, homeowners insurance, HOA fees, maintenance expenses, and utilities. Then, look at what’s left after your other obligations.”

The goal here is to eliminate overspending without sacrificing everything you love or want.  

Consider the home a long-term investment

Give careful consideration to how long you plan to remain in the home. To break even on your closing costs and other initial expenses and validate your investment, aim to stay put for at least 10 years (not 5 years, as was previously recommended), if possible. Your time horizon will affect your ability to afford homeownership in the short- and long-term.

Remember that it’s easy to underestimate the impact that future job changes, family situations, or unexpected market conditions can have on your housing needs.

“I always advise my clients to buff up their savings when they're looking to buy a home, as that can take some of the pressure off from upcoming home expenses for at least a few months,” says Jonathan Ford Jr., president of JFJ Advisory Services.

Buy a less expensive home

Consider buying a starter home or condo if you’re not yet ready to make the necessary financial sacrifices to afford a long-term home. Condos and starter homes tend to be smaller in size and more affordable, and they are often closer to urban centers, which may reduce transportation costs.

Another strategy is to opt for a longer-term mortgage, like a 30-year fixed-rate mortgage, versus a 15-year fixed-rate mortgage. Your monthly payments will be far lower, although you’ll pay more in interest. Once you’re comfortable with your monthly mortgage payment or can remove private mortgage insurance (PMI), you can refinance into a shorter term when the time is right.

If you’re not planning to stay in the home more than 5 years, consider an adjustable-rate mortgage (ARM) with a low introductory interest rate. Plan to sell or refinance before the introductory period ends.

Follow the 28% rule

The 28% rule is a general guideline for how much you should spend on a house. The rule says you should try to spend no more than 28% of your monthly gross income on housing expenses. To determine what your monthly homeownership budget should be under this rule, simply multiply your monthly income by 28%. The idea is to give you room in your budget so that you’re not pushing the limits and risking house-poor status. It’s worth noting that sticking to a hard 28% limit may be tougher given the expense of some housing markets where home prices are extremely high.

This rule specifically targets your front-end debt-to-income (DTI) ratio, which represents the maximum percentage of gross monthly income devoted to housing costs. Additionally, your back-end, comprising 36%, represents the maximum percentage permitted for all monthly debt obligations combined. Your front-end ratio is determined by dividing your total monthly housing expenses (consisting of mortgage principal, interest, taxes, and insurance) by your gross monthly income.

For example, if you earn $6,000 monthly and have a $1,680 mortgage payment, that results in a 28% ratio, which is also known as your housing expense ratio. Your back-end ratio is calculated by adding those housing costs to all other recurring monthly debts - such as student loans, car loans, and credit card minimums - then dividing that total by your gross income. For instance, if those same $1,680 housing costs are coupled with $480 in other debts, the $2,160 total creates a 36% ratio.

Note that lenders and loan programs may allow for higher DTI ratios (which is especially helpful in higher-cost markets). Still, it’s important to be careful and avoid overextending your finances.

Carefully looking at your DTI can give you an idea of how much house you can fit in your budget. To help determine what you can afford and abide by the 28% rule, try the Rocket Mortgage affordability calculator.

Create an emergency fund

Having an emergency fund can create peace of mind if you ever experience financial hardship or need to make a large and important purchase. A good emergency fund should have about 3 to 6 months’ worth of savings that could account for living expenses in extreme circumstances.

What to do if you’re already house poor

If you're feeling house poor right now, don’t despair. Work to lower your expenses, raise your income, and pursue worthwhile strategies, such as the following:

Consider refinancing

Refinancing your mortgage is one way to potentially lower your monthly mortgage payment when your budget is strained. Depending on your current credit score and DTI, as well as current market rates, you may be able to refinance to a mortgage with a lower interest rate. This could help you pay less each month and save some money for other expenses.

Besides lowering your rate, you could refinance into a longer term. If you were in a 15-year mortgage but lost your job 5 years into your repayment, it's possible to refinance your remaining 10 years of repayment into a 30-year fixed loan to significantly lower your monthly mortgage payment. This could allow more room in your budget. You could also choose to put more toward your payment to pay off the loan sooner if there came a time when you had more money available.

But refinancing has drawbacks. You’ll need to pay closing costs, which can average 2% to 5% of your new loan amount. Additionally, you may pay much more in total interest over the life of your new loan than if you had stuck with your original loan.

To help you make a more informed decision, use Rocket Mortgage’s refinance calculator.

Sell or downsize your home

If you feel you can no longer comfortably afford the home you have, you could always choose to sell your home and downsize. On one hand, you might be leaving your dream home. On the other hand, you’ll have the financial peace of knowing you’re now in a home you can afford. Listing your home for sale is worth considering if you’re reassessing your finances.

“Choosing a home that’s $50,000 to $100,000 below what you are approved for by a lender can free up hundreds of dollars a month for savings, investments, and actual quality of life. Buying less house now often means having more financial freedom for years,” Lokenauth continues.

Limit all discretionary spending

If you’ve experienced a recent financial shock, like a job loss or an unexpected big bill, you can likely improve matters by limiting or eliminating discretionary spending for a while. In other words, budget only for must-haves, not wants or unnecessary items.

This may not be fun, but it could be a needed measure for you to take until a long-term solution arrives and the urgency that led to a tight budget has passed.

Use your savings

If you’re really struggling, tap into any emergency savings you’ve salted away. This could work as a short-term solution until you’re able to improve your financial situation.

“If a refinance is not viable, you can lean on your savings while you weigh other long-term solutions. This can include lowering costs and cutting discretionary spending,” says Ford.

Dipping into savings and, if necessary, retirement funds, is generally a better solution than missing payments on a home or car, particularly if you’re trying to preserve credit and the long-term hope is to refinance your current mortgage or downsize into a different home.

Raise your income

While it’s easier said than done, there are steps you can take to increase your earnings. When paired with sensible spending limitations, this could provide an extra home affordability cushion. If you can make a good case, it doesn’t hurt to ask your employer for a raise. Be prepared to back your case with strong evidence of your performance and how it’s driven success across your team, the department, and even the company.

If a raise isn’t in the cards, ask if you can take on extra hours at work, or consider a second job or side hustle. You might also be able to pick up freelance work you can do from home on sites like Fiverr or Upwork. These opportunities make it easier to pick up extra money while working on a flexible schedule that still accommodates your current career goals.

Seek professional advice

Yearning for expert guidance during this difficult period? Contact a financial advisor, housing counselor, or other expert and ask for their advice. Consider reaching out to your mortgage lender if you are struggling with making mortgage payments; they may be able to offer different options that can help avoid foreclosure.

FAQ

Still have questions? Here are answers to some of the most common follow-up queries people have on the topic of being house poor.

What’s the difference between being house poor and house rich?

Being house rich means you have built significant equity in your home, but you are short on cash. Your asset is growing, but the liquidity isn’t quite there. Being house poor means the ongoing expenses of your home are squeezing your cash flow every month. You can actually be both house poor and house rich at the same time – such as if you have accrued $200,000 in home equity but are struggling to cover a $400 expense.

Is there a hard threshold for being house poor?

While there are home affordability guidelines you can follow, such as the 28% rule, there’s no single threshold for being considered “house poor” since this will depend on various expenses as well as your financial situation and lifestyle.

How many people in the U.S. are house poor?

About half (49%) of American residents encounter difficulty affording their regular rent or mortgage payments, per recent Redfin data. And in 2024, one-third of all American households – totaling approximately 42.5 million – met the criteria for being cost-burdened, meaning they allocated 30% or more of their gross income toward housing expenses and utilities, reports the US Census Bureau.

The bottom line: Take steps to avoid being house poor

When buying a new home, you want to ensure that you won’t be spending more than you can afford on your monthly house payments. This can cause you to struggle to afford other essential costs and fall behind on savings. If you think you’re already house poor, consider your available options, like refinancing your home loan into a more affordable one.

If you’ve found a home you can afford or are considering refinancing, you can reach out to Rocket Mortgage to start the loan approval process.

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.

Refinancing may increase finance charges over the life of the loan.