You can be house poor regardless of your median household income level if you're spending too much on your home. It doesn't matter whether you're an average Joe or a multimillionaire. If the percentage of income being spent on your home is too high, it can prevent you from achieving your long-term financial objectives.
Typically, people who spend more than 40% of their income on home expenses such as mortgage payments, taxes, and utilities are considered house poor. Being house poor means there's little room to pay for things like non-essentials and essentials that aren't house-related, such as food or car payments.
House Poor Requirements
When adding these expenses, in experts say that the ratio should not exceed 36% of your gross monthly income.
A Critical Number For Homebuyers
One way to decide how much of your income should go toward your mortgage is to use the 28/36 rule. According to this rule, your mortgage payment shouldn't be more than 28% of your monthly pre-tax income and 36% of your total debt. This is also known as the debt-to-income (DTI) ratio.
If you're spending more than 30% of what you take home on your basic housing costs, it's a clear indication that you're spending too much.
Research based on the various sources of housing and health data indicates that poor housing is associated with increased risk of cardiovascular diseases, respiratory diseases; depression and anxiety, rheumatoid arthritis, nausea and diarrhoea, infections, allergic symptoms, hypothermia, physical injury from accidents ...
Becoming house poor can affect your ability to save for retirement, pay off debt or afford other purchases. Experts recommend saving 3 – 6 months' worth of living expenses for an emergency fund. That's before considering retirement savings.
It's perfectly okay. You don't have to ashamed of it. You don't have to be ashamed of your friends thinking that being poor is bad–cause it's not. It's not a life choice; being poor is just a life circumstance.
When saving up for a home, it's key to have a reserve of cash savings — or an emergency fund — that isn't used for the down payment or closing costs. It's a good idea to have at least 3-6 months of living expenses saved up in this cash reserve.
While it's always been more expensive to be a homeowner in California, the gap with the rest of the country has grown into a chasm. The median California home is priced nearly 2.5 times higher than the median national home, according to 2019 Census data. The pandemic hasn't cooled the housing market, either.
After the purchase of your home, you should still hold 3–6 months worth of expenses in a basic savings account (or similar). Here's why: Once you own the home, you own any problem that might come up with the home.
What accidents could be possible because of poor housing? Poor housing can contribute to several types of accident including burns and electric shocks (if there is an electricity supply).
You might experience depression or low self-esteem because of housing problems. For example, this may happen if you need to move around a lot, making you feel less secure and affecting your relationships. Your living situation might make you feel lonely. This might happen if you live alone.
“Overpaying is generally OK for a personal residence that you will hold long term,” he said. “If you find a house you love and buy the house to live in long term — say 10 years — then paying an extra 10% will not make much of a difference after a decade.
If your dream home falls at the very top of your price range, there's nothing wrong with buying it as long as you can afford it (meaning you won't be spending more than 30% of your take-home pay on it). ... If anything, spending a bit less on a home could help you avoid the stress so many homeowners face.
The most common rule of thumb to determine how much you can afford to spend on housing is that it should be no more than 30% of your gross monthly income, which is your total income before taxes or other deductions are taken out. For renters, that 30% includes rent and utility costs like heat, water and electricity.
What is the 50-20-30 rule? The 50-20-30 rule is a money management technique that divides your paycheck into three categories: 50% for the essentials, 20% for savings and 30% for everything else.