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When someone is said to be “house poor,” it means that he or she spends an unusually large percentage of income on housing. The term is usually seen specifically in reference to the costs of home ownership, which include mortgage payments, insurance, and maintenance, although renters can also be house poor. Because someone who is house poor dedicates so much income to housing, he or she may have difficulty meeting financial obligations, and discretionary income is usually limited.
Classically, people become house poor when they are encouraged to buy a property which they cannot really afford. In housing markets which are extremely expensive, people may be forced to pay a high price to find a property which meets their needs, and they rationalize the purchase by arguing that rentals are equally high and that they need a place to live. People may also become house poor by simply overstretching their means and buying the house they think they deserve, rather than being realistic and choosing a property which they can comfortably afford.
It is also not uncommon for people to become house poor because they underestimate the costs of home ownership, and unscrupulous real estate professionals and bankers may encourage people to not look closely at the costs of owning a home. For example, people might look at a mortgage payment and believe that they can realistically afford it, but they don't think about the cost of utilities, maintenance on the home, and insurance, which means that they quickly find themselves underwater.
The big problem with being house poor is that it strains finances to the breaking point, making people very vulnerable to things like job loss, rising costs of living, or changes in family circumstances, such as a divorce, in which a home is no longer supported by a dual income. It is usually difficult to save money for unexpected events, or for long-term investments like retirement and college funds, with all discretionary income being poured into the house, and this leaves people in an unstable financial position.
Being house poor can also strain relationships. When people have no money to spend on vacations and casual entertainment, they can become very stressed out, viewing the house and a relationship as a burden. Especially if one of the people in the relationship pushed harder than the other to buy a particular house, the relationship may not be able to survive. Credit records can also be strained in this situation, as people may not be paying bills on time, and they may eventually face repossession or foreclosure.
People can avoid becoming house poor by buying wisely, selecting a home which they can comfortably afford, or renting until they have the money to buy. Some warning signs that people may be making a bad decision on real estate include: having a very low amount of cash for a down payment, being left with no money in reserve after handling the down payment and closing costs, or feeling stressed about the amount of potential mortgage payments.
My mother-in-law became house poor after her husband passed away and her income became very fixed and limited. She still owed money on the mortgage for a few more years, but now the money had to come out of her pension and social security income. Once she paid off that mortgage, however, we were able to get her a new reverse mortgage to pay for repairs and taxes.
I knew a couple who decided to put a lot of money into a house in a historical part of town. They both had steady jobs with decent income, but the mortgage was incredibly high because they didn't know how to negotiate with the seller. Because the house was in a historical section, they could only make repairs using materials available at the time the house was originally built. It soon became a money pit, and they were clearly "house poor".
To make matters worse, their relationship began to fall apart and the wife seriously considered getting a divorce. Because neither one could afford to take over the mortgage payments, however, they have stayed together for financial reasons. Now they live in separate parts of the house and still have all of those repairs to do before they can even consider selling the house and going their separate ways.
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