Being house broke or house poor means you're spending too much on housing expenses, relative to your income. This leaves little money left for savings or paying other bills, and can result in accumulating debt to cover daily living expenses.
A house poor person is anyone whose housing expenses account for an exorbitant percentage of their monthly budget. Individuals in this situation are short of cash for discretionary items and tend to have trouble meeting other financial obligations, such as vehicle payments.
As a general rule, financial experts recommend that you spend no more than 30% of your gross income on housing costs, including mortgage or rent payments, property taxes, insurance, and maintenance fees. If your housing costs exceed this threshold, it may be a warning sign that you're house poor.
The expressions “house poor” and “house broke” refer to the situation where homeowners have bought homes beyond their means. They end up spending all their income on repairs and expenses, forgoing vacations and discretionary spending.
(The Center Square) – Nationwide 27.4% of homeowners are considered “house poor,” meaning they spend more than 30% of their income on housing costs. However, in some U.S. cities, far more Americans are living beyond their means, according to research from the U.S. Chamber of Commerce.
House rich, cash poor is when you have a lot of equity in your house but not a lot of cash. For whatever reason, a homeowner has untapped equity in their property but is unwilling or unable to withdraw it. Due to excessive spending habits or financial responsibilities, the homeowner feels poor.
The 28/36 rule dictates that you spend no more than 28 percent of your gross monthly income on housing costs and no more than 36 percent on all of your debt combined, including those housing costs.
Is it bad to be house poor? Being house poor is a precarious situation that's certainly less than ideal. Paying too much for housing impacts your ability to save for retirement, pay down debt, cover the cost of emergencies or even simply pay your daily expenses.
With a 100K salary you can afford a $300,000 to $480,000 house at current interest rates. This would mean you would spend around $2,300 per month and you stick with the 28% rule that most experts recommend. You would also need to put down a down payment of 5% to 20%.
The average mortgage payment is $2,883 on 30-year fixed mortgage, and $3,759 on a 15-year fixed mortgage. But the median payment is likely a more accurate measure for many: $1,775 in 2022, according to the US Census Bureau.
The 28%/36% Rule
According to this rule, a maximum of 28% of one's gross monthly income should be spent on housing expenses and no more than 36% on total debt service (including housing and other debt such as car loans and credit cards). Lenders often use this rule to assess whether to extend credit to borrowers.
Adjective. cash poor (comparative more cash poor, superlative most cash poor) (business, finance) Possessing considerable economic assets, but unable to quickly or easily liquidate them for monetary transactions.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.
The 35% / 45% Rule For Mortgage Payments
If your income is $5,000 before deductions, your maximum monthly mortgage payment would be $1,750 ($5,000 ✕ 0.35 = $1,750). If it's $4,000 after deductions, your upper limit for your monthly payments would be $1,800 ($4,000 ✕ 0.45 = $1,800).
In general, experts recommend your DTI ratio to be less than 36 percent. 6 For example, if you make $60,000 a year, or $5,000 a month, you should ideally keep your debt below $1,800 a month. That means if you have no other debt, you would pay no more than $1,800 a month on your mortgage.
On a salary of $36,000 per year, you can afford a house priced around $100,000-$110,000 with a monthly payment of just over $1,000. This assumes you have no other debts you're paying off, but also that you haven't been able to save much for a down payment.
$100,000 a year is how much an hour? If you make $100,000 a year, your hourly salary would be $48.08.
That monthly payment comes to $36,000 annually. Applying the 28/36 rule, which states that you shouldn't spend more than around a third of your income on housing, multiply $36,000 by three and you get $108,000. So to afford a $500K house you'd have to make at least $108,000 per year.
A paid-for house, Is “also a great way to build wealth—getting rid of your house payment leaves you with a ton of extra money each month to save for retirement. In fact, the average millionaire pays off their house in just 10.2 years,” according to Ramsey's website.
Many studies over the years have shown that homeowners are, on average, happier than non-homeowners. In my own calculations, using the General Social Survey, 21 percent of people who own their home are “very happy,” compared with 16 percent of those who pay rent.
Most have paid off their mortgages. In 2020, 58% of the state's equity millionaires owned their homes free and clear. Statewide, there has been a dramatic rise in the number of Californians who have paid off their mortgages, from 1.6 million households in 2000 to 2.4 million in 2020.
Timing Requirements – The “3/7/3 Rule”
The initial Truth in Lending Statement must be delivered to the consumer within 3 business days of the receipt of the loan application by the lender. The TILA statement is presumed to be delivered to the consumer 3 business days after it is mailed.
So, to estimate the salary you'll need to comfortably afford a $300,000 home purchase, multiply the annual total of $24,000 by three. That leaves us with a recommended income of $72,000. (Keep in mind that this does not include a down payment or closing costs.)
The 20/10 rule of thumb is a budgeting technique that can be an effective way to keep your debt under control. It says your total debt shouldn't equal more than 20% of your annual income, and that your monthly debt payments shouldn't be more than 10% of your monthly income.