How to avoid buying too much house and what to do if you find yourself house poor.

Have you, or anyone you know, ever purchased a home and discovered the costs of homeownership left too little money at the end of each month? When the cumulative costs of mortgage payments, property taxes, maintenance and repairs, insurance and more consume a large portion of someone’s income, they’re considered to be house poor, which leaves little or no money for discretionary spending and can interfere with financial goals.

Do your research

The best way to avoid becoming house poor is to educate yourself about the actual expenses that come with homeownership. Check out our blog on how to budget for home maintenance, which will help your determine how much you’ll need to keep your home in tip-top shape.

Next, consider all the monthly and annual expenses associated with the home you’re interested in purchasing. If you’re used to renting, you could be in for some sticker shock when you realize the cost of electric, gas, water and sewer for an entire home. As part of your assessment of annual expenses, be sure to include homeowners insurance and, in some neighborhoods, homeowners’ association fees. And, twice a year property taxes are due.

Be realistic about your skills and willingness to DIY home maintenance and repairs. Even if DIY-ing brings personal satisfaction, you still need to be prepared for the cost of supplies and tools. If you know you don’t want to DIY repairs, lawn work and cleaning, make sure your budget is prepared to cover the cost of outsourcing this work. Learn more in our blog about DIY home improvement reality check.

What to do if you find yourself house poor

If you’re house poor, you might also hear your situation referred to as “house rich, cash poor.” Simply put, your money is tied up in home expenses.

Becoming house poor can happen no matter how much money you make. Whether a house costs $225,000 or $775,000 a buyer can easily find themselves putting too much of their paycheck toward housing expenses.

People in a house-poor situation have a few options:

• Tap into savings to alleviate the financial crunch. However, repeatedly doing this will erode your savings and make it more difficult to reach other financial goals.
• Earn more money. Is it possible to get a better paying job, take on a second job and/or have another household member do the same?
• Cut back on discretionary expenses. Consider scaling back your next vacation or trading in your vehicle for a less expensive one.
• Sell the budget-straining home and move someplace more affordable. While you may love your home, if it’s too expensive the costs can take a toll on your finances, health, relationships and overall well-being. For many folks, it’s a huge relief to move to someplace less financially demanding.

If you need help with finances and budgeting, take advantage of financial counseling from GreenPath, one of the many perks to being a member with Consumers Credit Union.

Consumers helps more than 2,000 members finance land, first and second homes, and home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit; contact us online or call us at 800-991-2221.