"House poor" is a term used to describe a person who spends a large proportion of his or her total income on homeownership, including mortgage payments, property taxes, maintenance, and utilities.
Why are so many people house poor in the US? There are many reasons this is a common problem nationwide. Some people fail to take all the costs associated with owning their home, including maintenance, home insurance, and utilities, into account. They are house poor as soon as they close the deal and move in.
House rich, cash poor is the term used when a homeowner has equity built up in their home but is burdened by expenses that eat up most or even all of their budget. While they may have untapped equity in their property, they are unable to access it while their lifestyle or personal debt grows at an unsustainable rate.
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.
You can also buy a house using a government-backed mortgage, like FHA or USDA. With these programs, the government essentially insures the loan, so you can buy with a lower income, credit score, or down payment than you could otherwise.
Millennials are spending the highest percentage of their monthly income on housing expenses compared to other generations. Millennials (83%) are far more likely to carry debt than baby boomers (72%).
'House-rich, cash-poor' explained in real numbers
(As a general rule, it's best to not spend more than 30% of your income on living expenses.) Your home equity makes up more than 80% of your total net worth. You have less than six months in cash reserves to cover your total monthly expenses if the need arises.
The 28% rule states that you should spend 28% or less of your monthly gross income on your mortgage payment (e.g. principal, interest, taxes and insurance). To determine how much you can afford using this rule, multiply your monthly gross income by 28%.
Housing takes up more than 30% of your income
As a general rule of thumb, your housing costs should never be more than 30% of your income.
69% of homeowners feel “house poor.” 3 in 5 homeowners didn't expect repair, maintenance and upkeep costs to be as high as they are. 3 in 5 homeowners are sacrificing home-related essentials in order to afford their housing costs.
You may not have known this before getting your mortgage, but the general rule of thumb is that your housing costs shouldn't account for more than 32 per cent of your gross household income.
How Much House Can I Afford Based on My Salary? To calculate how much house you can afford, use the 25% rule—never spend more than 25% of your monthly take-home pay (after tax) on monthly mortgage payments.
Net Worth Poverty Explained
That's the number the study used as a threshold for net worth poverty. If a family has less than about $6,500 in assets, they are considered to be net worth poor. “Wealth, or net worth, is the value of total household assets,” says Lisa A.
In the U.S. overall, it takes a net worth of $2.2 million to be considered “wealthy” by other Americans — up from $1.9 million last year, according to financial services company Charles Schwab's annual Modern Wealth Survey.
In fact, a good 51% of Americans say $100,000 is the savings amount needed to be financially healthy, according to the 2022 Personal Capital Wealth and Wellness Index. But that's a lot of money to keep locked away in savings.
While the current housing market is tough on every generation, it is possible for Gen Zers to achieve home ownership despite their financial circumstances.
Millennials have been hit especially hard by the current pandemic-fueled crunch in the U.S. housing market, as low inventory, inflation, and high competition have pushed costs up.
Another reason why some millennials aren't buying diamonds? The price tag. It's much cheaper to buy gemstones, such as opals and amethysts, than diamonds. Plus, your ring will stand out as unique amongst a sea of traditional, colorless diamond engagement rings.
It's definitely possible to buy a house on a $50K salary. For many borrowers, low-down-payment loans and down payment assistance programs are putting homeownership within reach. But everyone's budget is different. Even people who make the same annual salary can have different price ranges when they shop for a new home.
If you were to use the 28% rule, you could afford a monthly mortgage payment of $700 a month on a yearly income of $30,000. Another guideline to follow is your home should cost no more than 2.5 to 3 times your yearly salary, which means if you make $30,000 a year, your maximum budget should be $90,000.
Technically, you can get approved for an FHA loan with a median FICO® Score of as low as 500, but there are some serious drawbacks to an FHA loan with a score that low. The first is that you'll need a down payment of at least 10%. Secondly, when qualifying with a score that low, it's considered a subprime loan.
The usual rule of thumb is that you can afford a mortgage two to 2.5 times your annual income. That's a $120,000 to $150,000 mortgage at $60,000. You also have to be able to afford the monthly mortgage payments, however.