House poor: What it means and how to avoid it

Being a homeowner is widely considered a pivotal life milestone. Not only does it mean you have a place to live (important!), owning real estate can also be a reliable way to grow wealth. Despite those benefits, homeownership isn’t necessarily worth pursuing at all costs. In fact, if you buy a home that is mismatched with your budget, you might end up being “house poor.”

While 69% of people feel house poor¹ only about 27% of people actually are, according to data from the Census Bureau.². That means they spend more than  third of their monthly income on housing costsTo avoid becoming house poor, make sure to take into account all the hidden costs of homeownership, like maintenance and taxes, not just the mortgage payment.

Defining house poor

Being “house poor” means that a person has a high percentage of their monthly income tied up in housing costs, leaving little money for other expenses. This term, which is a shortened way of saying “house rich, cash poor,” is often used to describe a situation where someone has mortgage payments that are a high percentage of their income, or where someone has invested most or all of their savings into their home, leaving them with limited cash for other necessities.

Other ways to refer to this situation include “house broke” or “home poor.” They all describe the same problem: too much of your money goes towards your home.

There isn’t a universal rule for how much of your income you should spend on housing, but the amount should be manageable in relation to your other financial needs and goals. Experts usually say that you should spend anywhere from 25% to 35% of their income on housing, with 20% being a pretty conservative estimate and 35% quite liberal. So if you're spending more than about 30% of your income on housing, it may indicate that you're house poor.

How to tell if you’re house poor

If you’ve bought a home and feel like you suddenly are very short on cash or you’re having a lot of trouble meeting your living expenses outside of housing costs, you might be house poor. Here are signs that someone is house broke:

• You’re struggling to make ends meet: If you're constantly feeling like you're struggling to make ends meet, it could be a sign that your housing costs are eating up too much of your budget.
• You have limited savings: If you have limited savings or are unable to build up your savings, it may be a sign that your housing costs are taking up too much of your budget.
• You don’t have limited discretionary funds: If you find that there is no room in your budget for discretionary spending, such as eating out, entertainment, or vacations, it may indicate that you're house poor.
• You’re dipping into savings: If you're consistently borrowing money or dipping into savings to pay your housing expenses you might deplete the money you set aside for something else.

However, the best way to tell if you’re house poor is to simply do the math and see if your housing costs actually high relative to your income.

How do you become house poor?

Here are some common ways that people become house poor:

• Overbuying: Purchasing a house that is more expensive than what you can afford, based on your income and other financial obligations.
• Underestimating costs: Not factoring in all the associated costs of owning a home, such as property taxes, insurance, utilities, and maintenance.
• Not saving enough: Not having a sufficient emergency fund or savings for unexpected expenses, such as home repairs.
• Carrying too much debt: Having high levels of debt, such as credit card debt, car loans, or student loans, can limit your ability to make mortgage payments.
• Rising interest rates: If interest rates rise, and you have an adjustable-rate mortgage, your mortgage payment can become higher, putting more stress on your finances.

Related: Here are first-time homebuyer mistakes to avoid

5 ways to avoid becoming house poor

To avoid being house poor, it's important to consider your financial situation carefully before making any housing commitments, and to budget your expenses in a way that allows you to maintain a comfortable standard of living. Whether you’re just starting your house-hunting journey or you already own real estate and just want to be smart going forward, here are five tips to help you do that. 

Study the costs of homeownership

The costs associated with buying and owning a home are more than just the mortgage payment. Before you commit to becoming a homeowner, there are other costs that you might need to take into account:

• Closing costs: These are charges for services associated with the real-estate transaction itself, and you’ll need to pay these at the time of closing.
• Property taxes: Find out what the property taxes in your target area are, and be sure to factor them into your homeownership budget.
• Homeowners association (HOA) fees: If your home is part of an HOA, you’ll likely have to pay fees to cover things like neighborhood upkeep and repairs.
• Home repairs and other maintenance costs

Use our mortgage calculator to figure out what your monthly expenses will be. The tool takes into account your mortgage payment, property taxes, and HOA fees, along with other factors. 

Consider a “starter home”

Depending on your budget and the costs of homeownership in your location, you may not be able to purchase your dream home right away. That’s why so-called “starter homes” exist. They emphasizing affordability and are a great way to become a homeowner while you save up to invest in a larger or more expensive property. You might also consider a tiny home or townhouse as your first home.

Stick to a budget for living expenses

Regardless of the house you end up purchasing, it’s a good idea to decide how much you can afford to spend on a house each month and stick to it. Creating a budget that incorporates all of your living expenses, including the costs associated with homeownership as outlined above, will help you know how much house you can buy without becoming house poor. 

Choose the right mortgage

The type of loan you secure can play a role in how much house you can afford because your monthly payment can vary depending on the type of loan and the mortgage rate you secure. So be sure to compare multiple loan estimates before you apply for a mortgage and make sure you’re getting the lowest possible interest rate.

While you may be able to comfortably afford your home right now, the unexpected can always happen. Ideally, you’ll have cash available just in case, say, your basement floods or you lose your job. Having an emergency fund will give you a financial cushion. 

Save money in an emergency fund

While you may be able to comfortably afford your home right now, the unexpected can always happen. Ideally, you’ll have cash available just in case, say, you need a roof replacement or find yourself in between jobs. Having an emergency fund will give you a financial cushion, and experts recommend stowing away at least three months worth of expenses.

What should you do if you’re house poor?

Is all of this sounding a little too accurate, like you may in fact be house poor? Don’t worry; there are ways out. Here are some ideas about how to deal with a "cash poor, house rich" situation.

• Create a budget: This will help you see exactly where your money is going and where you can make cuts to free up more funds for your other expenses.
• Downsize: If your house is too big for your budget, consider downsizing to a smaller home that is more affordable.
• Rent out a room: If you have extra space in your home, consider renting out a room to bring in extra income.
• Refinance: Refinancing your mortgage can lower your monthly payments and free up more money for other expenses.
• Increase your income: Consider getting a part-time job or finding ways to increase your income through freelance work or starting a side business.
• Reduce expenses: Look for ways to reduce your monthly expenses, such as cutting back on discretionary spending, negotiating bills, or finding ways to save on utilities.
• Sell the house: If all else fails, you may need to consider selling your house and finding a more affordable home that fits within your budget.

It's important to take action quickly if you find yourself house poor to avoid falling into debt and damaging your financial health. Seeking the help of a financial advisor or counselor might also be a good option.

House poor FAQ

These frequently asked questions being house poor can help you understand more.

Does being house poor affect your credit score?

Just the fact of being house poor does not negatively affect your credit score. Technically, you can be house poor—struggling to make your mortgage payments, or to pay your other expenses on top of your housing costs—but still make all your payments on time. But if you’re so house poor that you’re making your mortgage payments late, or even missing them, that will cause your credit score to drop. Additionally, the total debt you carry also impacts your credit score.

What debt-to-income ratio is considered house poor?

If you're taking out a mortgage to buy a house, lenders will typically look for a debt-to-income ratio of 28% to 36% depending on loan type. It's possible to end up with a greater DTI after you secure your mortgage, especially if you don't account for other costs of homeownership or incur other unexpected events that you didn't plan for.

Is it bad to be house poor?

It isn't necessarily bad to be house poor; it just means you may not have enough cash flow for other expenses. Paying more than 30% of your income towards housing may not be ideal, but as long as you're able to save and live comfortably, it isn't always the end of the world. On the other hand, if you're barely getting by, unable to put away for retirement, or racking up credit card debt, then it could pose more danger to your financial health.

Article sources:

1. Consumer Affairs: "What is House Poor?." Accessed February 15, 2023.
2. Census Bureau: "American Community Survey, 2021." Accessed February 15, 2023.