One of my favorite FPU small group discussion questions often doesn’t lead to much discussion, because that day may be the first time they are learning about the possibility of being “house poor.” It is one of my favorite questions, because being “house poor” has brought me a lot of emotional and physical sick-to-my-stomach stress over the years. Daniel and I are gratefully walking out of being “house poor” right now, but I don’t want to forget the difficulties that our decisions have brought us. Here is the FPU discussion question:
Many American families are currently living in a home that they cannot afford. What are some situations that might cause someone to become “house poor,” and what are some solutions?
What does being “house poor” mean?
House poor is a term describing a homeowner who spends the majority of their income on housing costs (including mortgage, taxes, insurance.) Larry Burkett’s Crown Financial Ministries suggests spending 25-40% of your monthly budget on housing costs. By these standards anyone spending more than 40% of their monthly budget on housing is in danger of becoming “house poor.” Dave Ramsey suggests keeping housing costs to 25% or below your monthly budget.
A homeowner who is making mortgage payments and can’t afford needed repairs may also be considered “house poor.” In this situation a homeowner can make the mortgage, but can’t afford to fix a broken toilet, replace a roof, or a fix a falling down fence. In America we are tempted to take out loans to pay for major repairs. Then the loans begin piling up and without any drastic changes to the situation the homeowner will always be “house poor.”
Here are 5 situations that might cause someone to become “house poor:”
1. Buying too much house
A couple buys a large home by financing more than they needed because it was available. Someone else may have champagne taste and a beer pocket book. Another reason why someone may buy too much house is because they want to live in a particular part of town that is expensive. In all these cases everyone is living above their means.
Solution: Sell the home and buy a more affordable house. Another solution is to raise the income to bring the housing costs within the 25% range. Maybe that is taking a higher paying job or a stay at home mom taking on some extra work.
2. A loss or dip in income
Someone may have a job change or go on disability. Regardless of how the income drop occurred it will effect how much you are able to pay for a home and how much you are able to pay for repairs.
Solution: Sell the house or make more income. If an increase in income can’t happen quickly, then selling the house may be the best option.
3. No savings
Home maintenance can be costly. A/C units, new roofs, or a new fence are not cheap. Even a call to pest control can cost $200. If every repair is around $200, then they begin to add up over time. A homeowner shouldn’t be surprised when something breaks or doesn’t work how it is supposed to. Things wearing out or breaking is a fact of life.
Solution: Save money specifically for home repairs.
4. You don’t make any repairs
When a homeowner’s money is going straight to the mortgage and entertainment, then that person may not have the money to make repairs. A homeowner either can’t pay for the needed repairs in cash or they are simply choosing to spend their money on other things.
Solution: Create a household line item in the budget and cash flow repairs as needed. Keep up good maintenance habits. Fix items when they are broken instead of allowing them to pile up over the years.
5. You are in debt
When a homeowner is in debt, then money that could be allocated to repairs is sent to the debtors.
Solution: Fix what you can afford while you pay off debt. Once the debt is paid, then fix the home with cash. Another option may be to sell the house and rent so you don’t have to pay for a lot present repairs needed and pay no future repairs.
Being “house poor” weighs on you mentally when you see the broken stuff every day that you live in the home. It is not peaceful to have to worry about where the money is going to come from when something needs fixing. By living with your means and saving for repairs, then home ownership can be a dream.
Have you ever experienced being “house poor?” Would selling your home to lower your living expenses ever be an option for you?