How to avoid (or overcome) being house poor

The term “house poor” describes people who spend much of their income on home-related costs such as mortgage payments, maintenance, utilities, and insurance. Consequently, they have little money left for other financial obligations.

In this article, I’ll explain why being house poor is such a terrible thing. I’ll also share how you can avoid this scenario – or overcome it if you’re already there.

First, though, let’s take a closer look at how being house poor typically affects people.

Common symptoms of being house poor

A blue detached house.

Spending more than 25% of household income on shelter

Financial experts (including the ones at Consumer Reports) typically recommend spending no more than 25% of your monthly take-home pay on housing. That includes your mortgage payments, taxes, utilities, and insurance.

Following this guideline ensures you’ll have enough room for other budget items, such as food, transportation, entertainment, savings, and unexpected expenses.

Of course, many people blow right past this proposed limit. According to the U.S. Bureau of Labor Statistics, the average American household spends 31% of their income on shelter.

The situation is even worse in Canada, where housing eats up 45.9% of the average person’s income every month. In Toronto and Vancouver, the average percentage climbs past 70%.

Anyone spending nearly three-quarters of their monthly income on homeownership is undoubtedly house poor. Even the much lower national averages I mentioned earlier are problematic, though.

Of course, these people aren’t always being consciously irresponsible. In many developed countries, homes have gotten unsustainably expensive. Some people feel they don’t have any choice but to overextend themselves well beyond the 25% guideline. This doesn’t make them any less house poor, though.

Having little to no outside wealth

Someone who is house poor treats their home as more than just shelter. It’s also their retirement account, emergency fund, and more. This is risky, to say the least.

For starters, while people have grown accustomed to seeing house prices skyrocket year over year, that’s not guaranteed to continue all the time. Home equity can evaporate almost overnight, which is exactly what happened during the 2008 financial crisis. In some states, valuations still hadn’t reached pre-recession levels 10 years later. That’s bad news for house poor individuals who didn’t have wealth elsewhere (i.e. in the stock market, which had recovered by 2012).

Further, homeownership is more expensive than many people like to admit. While real estate valuations generally rise given a long enough period, much of that growth is spent on costs such as insurance, property taxes, and maintenance. Consequently, someone who’s house poor and keeps all of their wealth in a primary residence will likely see mediocre returns compared to people with more diversified portfolios.

Struggling to keep up with home maintenance and utilities

House poor individuals often underestimate just how expensive homeownership can be. They allocate most of their income to obvious house-related expenses (i.e. mortgage and insurance payments) yet don’t account for maintenance.

When the roof starts leaking or the air conditioner dies, these people typically have to take on debt or postpone the maintenance until they can pull together enough money. In other words, they struggle to keep up with home maintenance.

Similarly, some people buy an oversized house without stopping to think about how much heating and cooling it will cost. They can hardly keep up with mortgage payments alone, even before utilities are factored in.

Constantly worrying about housing costs

A shelter is among life’s most basic needs. As such, worry is a very reasonable response when someone feels uncertain about the roof over their head. It means the possibility of falling behind (and perhaps even losing the home) is too real for comfort.

While housing costs will always be a significant part of most people’s budgets, they should never be so high as to cause overwhelming pressure.

Why being house poor is a problem

A man with his pockets turned inside out, showing poverty.

Some people see no problem with being house poor. Typically, the rationale is that homes are investments and associated expenses should be viewed accordingly. There are a few potential issues with accepting this logic unquestioningly, though.

Reason #1: Homes aren’t always great investments

Despite the real estate market’s hype, people lose money on homes all the time.

Think back to my earlier example in which I highlighted that house prices in some U.S. states still hadn’t recovered from the 2008 crisis 10 years later. While they’ll likely reach pre-recession levels again eventually, individual homeowners may need to sell before then, locking in those losses.

A major recession isn’t the only scenario in which you can lose money on a house, though. Many home-related expenses (including mortgage interest, property taxes, utilities, insurance, maintenance, and upgrades) don’t build any equity whatsoever. When the value of a home’s equity doesn’t rise fast enough to compensate for these expenses (and real estate transaction costs, for that matter), the owner loses money.

Now, if the home fits comfortably into their budget, this isn’t the end of the world. They’ll still have enough money each month to invest in other assets, such as their stock portfolios.

If the person is house poor, though, they won’t have this option. They’ll be stuck pumping most of their income into an underperforming asset.

Reason #2: Being house poor can have devastating financial consequences

Related to my previous point, being house poor can prompt devastating financial consequences. This isn’t just limited to simply lacking a diversified portfolio, either. People often experience more acute effects.

For example, job loss can unleash immediate financial havoc as someone who’s house poor typically lacks significant savings to keep up with expenses during several months of no income.

Reason #3: The issue is likely to go unaddressed

Homeownership is a fiercely defended part of the American Dream. Consequently, being house poor is more socially acceptable than excessive credit card debt.

It’s not just one’s friends and family that condone reckless homeownership, either. Professionals in many industries (i.e. real estate sales and mortgage lending) do the same for their own gain. It’s possible to go through the entire process of buying a home way beyond your budget without anyone ever raising an eyebrow.

This is a big deal. People can’t fix something they don’t even recognize is broken.

How to avoid becoming house poor

Now that we’ve defined being house poor and discussed why it’s a problem, let’s explore how you can avoid it.

Run the numbers before buying a home

Remember my first point in the previous section? Indeed, primary residences don’t always yield positive financial returns, contrary to popular belief.

As Ramit Sethi (one of my favorite personal finance authors) recommends, run the numbers for yourself. Determine how much homeownership (including regular maintenance, utilities, insurance, and other commonly-overlooked expenses) would likely cost you monthly. If that amount greatly exceeds 25% of your take-home pay, you risk becoming house poor.

“But renting places me above the 25% threshold anyway!”

As I mentioned earlier, the 25% guideline is quite optimistic. Many people – including those who rent – blow right past it.

Renters, however, don’t have to deal with unexpected costs like $4,000 roof repairs, though. For the lease term, rent is their maximum monthly housing cost.

For homeowners, however, mortgage payments and other predictable costs represent the minimum monthly housing cost. There’s always the potential for surprises.

My point? Comparing the predictable cost of owning to that of renting is not apples-to-apples. Homeownership comes with unknowns that often make it more expensive – even when the mortgage payment is cheaper than rent. Keep that in mind when considering whether buying would leave you house poor.

Make sure your other expenses are under control, too

You should evaluate your entire financial picture before purchasing a home. See where costs like transportation and food fit in.

Experts generally recommend keeping all essential expenses at or below 50% of your take-home pay. It’s called the 80/20 rule. If you run the numbers and find you’d be way over that proposed limit, see where you can cut back. Don’t buy a home until you’ve got your entire budget under control.

Buy a house you can afford

This next tip should almost go without saying. However, many people have a hard time following this seemingly-obvious logic.

Some find houses within their budget are underwhelming and decide to compromise. Others fall for a particular house and end up in a bidding war for it. In either scenario, it’s very easy to overextend yourself and become house poor.

Avoid this by setting a budget and sticking to it – even if you’re approved for a substantially higher mortgage or it takes a long time to find a home in your budget. While it might be frustrating, don’t let emotions rush you into the biggest purchase of your life.

Plan your down payment carefully

Many people believe putting 20% down on a home is a financially responsible move. This isn’t always the case, though – especially if you’re buying in an expensive area and don’t have much cash.

In this scenario, putting 20% down could mean draining most of your savings and rendering yourself truly house poor (see my second point in the “Common symptoms of being house poor” section).

As with anything when buying a home, don’t just accept dogma. Run the numbers and see how different down payments would affect not only your mortgage but also your broader financial situation. Make sure you’re allocating enough money to other priorities (including your retirement savings and emergency fund). This leads nicely to my next point.

Give your emergency fund a boost

Having an emergency fund is very important when you’re a homeowner. It can even mean the difference between affording a property comfortably and becoming house poor.

Experts generally recommend maintaining an emergency fund equivalent to between three and six months of your expenses. Even if you’re never out of work for that long, such an amount will shield you from many (if not most) major house-related surprises.

If your emergency fund isn’t at that level yet, consider getting it there before buying a home. You’ll likely sleep much easier at night once you do.

What to do if you’re already house poor

Next, here’s what you can do if you’ve already overextended yourself on a house.

Consider downsizing

Let’s get the most obvious (and dramatic) option out of the way first. If you can’t afford your current home, consider selling it and buying a cheaper one.

Granted, this may not always be feasible, especially if you have firmly planted roots in your area. If you have the option of relocating, though, doing so could be a very concise solution to your problems.

This doesn’t always mean moving into a smaller, uglier home, by the way. In fact, if you currently live in an urban center, moving to a rural region (or even just the suburbs) could help you cut housing costs and find a nicer place.

For example, here’s what $1.8 million dollars could theoretically buy in Toronto:

A green house selling for $1.8 million in Toronto

As we speak, dozens of people are likely bidding on this place. It will almost certainly sell above asking. Look at that thing. I don’t even need to expand.

Meanwhile, you could buy this house in Prince Edward County (a two-and-a-half-hour drive from Toronto – ideal for working remotely) for $499,900.

Of course, there are important financial caveats when it comes to selling your home.

If you currently owe more than the home is worth (known as being underwater), you may need enough cash to cover the difference before selling. This may be challenging if you’re house poor.

Also keep in mind you’ll pay realtor fees as a seller, which will reduce the amount of money you receive.

Still, if you can relocate and the numbers work out, it’s worth considering.

Reduce your spending

If downsizing isn’t an option, something else has got to give. Shift attention towards other parts of your budget.

Your car is a great place to start. It’s likely the second most expensive thing you own (both in terms of value and monthly costs) so getting it right is key. Consider downsizing if you spend more than 15% of your monthly take-home pay on car-related costs, including payments, fuel, and insurance.

If that’s not the issue, here are some other areas to consider cutting back on:

  • food (eat out less and shop at a cheaper store)
  • entertainment
  • wireless service
  • insurance

You could even consider something like the no-spend challenge to save money in occasional short bursts.

Increase your income

You can only cut back so much. Eventually, it helps to earn more. Thankfully, there are many ways to give your income a boost without much effort. I listed a few options in this article.

Once you start earning more, resist lifestyle creep. This is the tendency to inflate your spending with every raise or new side hustle. Instead, use that new money wisely to relieve pressure. That could mean paying off debt faster, increasing your retirement savings, or just about anything else that helps you stop feeling house poor.

Lower your mortgage payments

Another way to feel less house poor involves reducing your monthly mortgage payments.

You can do this by extending (also known as recasting) your mortgage. This is exactly what it sounds like; you’ll make payments over a longer term (i.e. 30 years instead of 15) and reduce your monthly payments in the process.

You could also refinance your mortgage if doing so would result in a lower interest rate. This can be especially helpful if you’re a relatively new homeowner since interest makes up a large chunk of every payment early on.

Yet another option would be to eliminate private mortgage insurance (PMI) by making a lump-sum payment that puts your home equity above 20% of the property’s value.

One last method is called house hacking. It’s simple. Rent out part of your home and use the income to offset your mortgage payments. Even a single unused bedroom could generate hundreds (if not thousands) of dollars per month.

Budget wisely

When you’re house poor, budgeting can mean the difference between getting by and running out of money every month. It may even reveal your financial situation isn’t all that bad but just needed some organization.

You see, budgeting is all about telling your money where to go. In the absence of clear directions, it tends to develop a mind of its own. You’ll end up feeling stretched thin even if your income is more than enough to cover expenses.

Check out this article for some tips on getting organized and establishing a budget.


Being house poor is incredibly common due to a combination of financial illiteracy and skyrocketing real estate valuations. I hope this article has helped you understand why overextending yourself on a home is such a bad idea.

For more personal finance tips and analysis, check out my other blog posts here.

About the author

Brandon-Richard Austin

Brandon-Richard Austin is the founder of Rinkydoo Finance. He is an avid investor and digital marketer for startups and publicly-traded companies alike.