How do I know if I'm house poor?

'House Poor' Defined When someone is house broke, it means that they're spending too much of their total monthly income on homeownership expenses such as monthly mortgage payments, property taxes, maintenance, utilities and insurance.

rocketmortgage.com - What Is House Poor & How Can You Avoid It? - Rocket Mortgage

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Now that we know what it means to be house poor, how do people get that way in the first place? First-time homeowners may simply not plan beyond the costs of buying a house – and the down payment and closing costs are just the start of the lifelong expenses of owning a home. But the costs of owning a home are significant and you should include them when you’re creating your house buying budget. More than the monthly mortgage payment goes into buying a home.

Homeownership Costs

It's a good idea to do research on future household expenses before moving forward with a home purchase so that you're not surprised in a big way. Many expenses may cost more than you think they will, so the more you know going in, the better you can be prepared. If you’re moving from an apartment or condo to a single-family house, you may be shocked when you get your first utility bill, which may be higher than you’ve been paying for a smaller home. Don’t forget to factor in costs like increased transportation expenses or services like landscaping or snow removal. On top of the greater expense, there’s just a lot more of them. For example, if you’re moving from a city apartment where you dispose of garbage through a chute, you’ll have to buy garbage cans and bags. If you’ve never had to think about the garbage cans, you may be surprised to learn their cost and how many you’ll need. Also, you’ll need items like shovels, rakes, wheelbarrows and household tools for basic lawn maintenance and repairs. It adds up quickly. Here are some of the big-ticket expenses beyond the mortgage to think about.

Property Taxes

Although these are usually included in your monthly mortgage payment along with homeowners insurance if you have an escrow account, one of the important things to realize is that your mortgage lender is preapproving you based on an estimated initial property tax. This is one of the biggest items that changes after you buy a home. Your home’s previous owner disclosed what they had been paying based on the home’s assessed value. If you paid significantly more than their assessed value, your taxes rise accordingly because your purchase price becomes the new assessed value of the home. Visit the website of the property taxing authority where your new home is located to find out exactly what your tax bill will be after purchase, whether there are any property tax rate hikes on the horizon and how often property values are assessed.

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Homeowners Association (HOA) Fees

If the home you’re considering is located within a homeowners association, you’ll have to pay HOA fees in addition to property taxes and homeowners insurance. Unlike these other expenses, though, HOA fees are not included in an escrow account and aren’t part of your monthly mortgage payment. Because of this, they can be easy to forget until they become due. They also tend to rise over time. There can also be special assessments to meet major maintenance costs. Check the homeowners association meeting minutes for at least the past year to see if there are any plans for major maintenance on the horizon. If you fail to stay current on your HOA fees, you may face penalties and interest rates on those fees. If you don’t pay, eventually you’ll have a lien placed on your property which will make it difficult to refinance or sell your home.

Maintenance Expenses

Something is eventually going to break in your home. While it’s impossible to say when, you can make some educated guesses based on how old the home is and when major systems, the roof and any included appliances were last replaced. Maintenance costs are often between 1 – 3% of the purchase price of your home each year. Whether you can expect to be at the low or high end of that range often depends on the age of your home. If you’d prefer to have a stable home maintenance cost that handles unforeseen contingencies, you may want to consider a home warranty or, in a buyer’s market, ask the seller to include a home warranty with the purchase.

rocketmortgage.com - What Is House Poor & How Can You Avoid It? - Rocket Mortgage

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