How to Avoid Becoming House Poor

What exactly does it mean to be "house poor?"

House poor is a term used to describe someone who spends the majority of their income on housing costs. This leaves little money leftover to cover other financial needs, bills, debt or personal activities, aka, 'fun.'

You definitely don’t want to find yourself in this situation, so the following article will equip you with valuable insights to help you avoid it when you're ready to enter the housing market. By the time you're finished, you'll be well-informed and fully prepared for the realities of homeownership in 2025!

My first tip is to make sure that you have the following things saved for BEFORE you start to look at houses: 1. Down Payment

2. Closing Costs

3. Emergency Fund

Many first time buyers don't realize the importance of having an emergency fund set aside. Life happens when we least expect it, and emergencies can come up that you need to be prepared for.

Issues such as roof damage, flooding, and HVAC problems can occur unexpectedly and often come with high repair costs. Take it from someone who owned a Century Home and once arrived home to a basement that was taking on water Titanic style because my water sensor had failed. Not a fun time I can assure you. To avoid the risk of having to rely on credit cards for emergency expenses after purchasing a home, it’s important to be prepared for these potential financial burdens. Not to mention, borrowing to pay emergency bills can add up, and credit card debt is no joke. it can quickly spiral out of control and lead to someone becoming house poor.

My second piece of advice, is to never purchase a home at the top of your budget.

Don't do it.

Its can be really hard to put the emotions aside when looking at homes, and make a logical decision. But its so important to avoid getting into a bidding war at the top of your budget, and make a risky financial gamble. You may need to compromise on things such as, size, location and features, if it means assuring that you have some financial wiggle room to put savings aside each month. Just keep in mind, there's the amount you will be approved for, and then there's the amount you can actually afford monthly. You will be pre approved based on your Gross (Pre tax) income, not your Net (post tax and deductions) income. So make sure your lender is running the numbers for you and you keep your actual 'takeaway' income in mind.

Lastly, I would strongly advise you to live in the home for a year before starting any major renovations. Sometimes we bite off more than we can chew, and its very easy for one tiny renovation, to spiral into endless updates and spending to attempt to update the home all at once. Its important of course, to do essential maintenance, especially if something came up on your home inspection. You absolutely have to green light to go ahead and handle all necessary repairs right away. However, you need to prioritize your projects, and remember, you don't have to do it all at once. Typically we stay in our first homes for approximately 3-7 years total, so there is plenty of time to put in that good old 'sweat equity' and customize along the way.

Buying a home is an emotional decision, and it can be challenging to compromise on certain must-haves. However, with the current inventory offering so many beautiful options, your agent can help you uncover hidden gems and properties with strong potential for building equity. Keep these tips in mind, and stay financially confident as you embark on your homeownership journey.