House poor is a situation where a person spends a large portion of their total income on home ownership. This includes mortgages payments, property taxes, utilities, and maintenance. Individuals in this situation find themselves short on cash for other financial obligations, such as car payments. This usually happens because someone purchases more house than they can afford. If you think you might be house poor, ask yourself the following questions.
What caused you to be house poor?
The main reason that people are house poor is that they buy more house than they can afford. However, this isn’t the only way someone can get themselves in this situation. Sometimes, a person can become house poor because of unforeseen circumstances. If there is a switch in the financial picture in your home or added expenses, such as after the birth of a child, you may start to feel financially stretched.
Is this a temporary situation?
Is the situation temporary or is it permanent? If you look at the situation and it seems that it will only last a few years, you may be able to make it work. In this case, cut down on unnecessary spending. This may mean to get rid of a gym membership, to cut back on your grocery bill, or to not take as many vacations. However, if you don’t see the situation clearing up in three years, you may have to take action to change the situation.
What short-term sacrifices can you make?
Consider taking on extra work to bring more money into the house. This could happen by starting an extra job, changing jobs, or even changing your career field. If you choose to do this, set a time limit. If you haven’t raised enough money to cover your payments after the time expires, you may want to consider selling your home.
Do you need to sell the home?
While difficult, selling your home and downsizing can be beneficial to get you back on track. If you determine you are going to sell your home, get in touch with a realtor as soon as possible.
Is foreclosure a possibility?
If you are close to foreclosure but are having difficulties selling your home, ask your bank for a short sale. This is when the bank agrees to accept the amount you sell the house for to cover the mortgage. The lien is released and the title is signed over to the new owner.
How can you prevent this from happening again?
Before purchasing a new home, decide how much you can spend before starting to look at houses. In general, you should keep your mortgage payments to about 25% of your income. The maximum you should spend on a house should be two and a half times your current salary.