What Does It Mean To Be ‘House Poor’ Or ‘House Broke’ And How Can You Avoid It? (2024)

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.

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.

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.

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.

I’ve spent years deeply immersed in the realm of homeownership, from the financial intricacies to the practicalities of maintenance. Understanding the nuanced costs of owning a home involves more than just financial acumen—it's about grasping the real, day-to-day commitments that come with it.

The article touches on several key facets:

Initial Costs and Budgeting: First-time homeowners often miscalculate the expenses involved beyond the down payment and closing costs. The initial focus tends to be on acquiring the property rather than anticipating the ongoing financial responsibilities.
Beyond Mortgage Payments: Owning a home incurs various expenses beyond the monthly mortgage. Utility bills for larger spaces, increased transportation costs, and additional services like landscaping or snow removal contribute significantly to the overall expenses.
Unexpected Expenditures: Transitioning from a smaller living space to a house brings unforeseen costs, from garbage cans to basic maintenance tools like shovels and wheelbarrows. These expenses accumulate swiftly and can catch homeowners off guard.
Big-ticket Expenses: The article mentions several substantial expenses beyond the mortgage:
- Property Taxes: A significant cost that changes based on the purchase price. It's crucial to anticipate the rise in property taxes if the purchase price exceeds the assessed value of the home.
- Homeowners Association (HOA) Fees: Not included in the escrow account or monthly mortgage payment, these fees are often forgotten but tend to increase over time. Failure to pay can lead to penalties and even property liens.
- Maintenance Expenses: An inevitable aspect of homeownership. Anticipating maintenance costs (around 1-3% of the home's purchase price annually) is crucial, depending on the age of the property.
Future Preparedness: Planning for unforeseen contingencies, like breakdowns or repairs, might involve considering a home warranty or negotiating one as part of the purchase agreement in a buyer's market.

Understanding these components and planning meticulously before purchasing a home is essential. It’s not merely about financial readiness but also about being mentally prepared for the day-to-day responsibilities and costs that come with owning a property.