Purchasing a house represents a significant investment. For some people, the investment pays off. However, for others, owning a home becomes more of a burden than a blessing. These people are “house poor.”
The National Association of Realtors defines “house poor” as having to pay a monthly mortgage payment that is so high that the homeowner has difficulty paying other bills or affording basic necessities. There are different ways that people can become house poor, and different ways to deal with it.
How do people become house poor?
Some people become house poor by purchasing a home that is more than they can afford in the first place. Financial advisers and planners try to prevent this by advising borrowers that their monthly mortgage payment should represent no more than 30% of their pre-tax monthly income.
However, according to Homelight.com, sometimes people take out a mortgage that is reasonable at the time that they borrow it, but their circumstances change in the future. They may experience a job loss or a demotion and end up earning less than they used to. They may experience a medical emergency that incurs significant debt. In these situations, and through no fault of the homeowner, the monthly mortgage payment becomes unmanageable.
What can people do about it?
Limiting one’s spending and earning more income through a second job or “side hustle” may help homeowners meet the monthly mortgage payment and escape being house poor. It may be possible to refinance the home to reduce the monthly payment or rent out space to tenants to help meet the mortgage payment. Paying down the principal on the mortgage can help put the homeowner in a better financial position. Another option, though one of the most drastic, is to sell the home and purchase a smaller one.