House Poor

Avoid the trap of being ‘House Poor’!

Vancouver, and indeed most of the Lower Mainland, has some of the most astronomically high priced real estate in the world. That makes it very easy to be trapped into buying a home that leaves you ‘house poor’.

According to RBC Home Ownership Poll, conducted by Ipsos in 2019, 2 in 5 Canadians say that being ‘house poor’ is a reality, while just less than half say it’s worth the sacrifice to own a home. Meanwhile, over half said the would not put themselves into the position of being ‘house poor”, and 92% said that mental stress is a potential impact of being ‘house poor’.

Having the most beautiful home on the block sounds great – but not if you are stressed, perpetually struggling to buy the essentials of life.

As Realtors, we can help you buy your dream home. But please — carefully consider your budget and buy a home you can truly afford, to ensure your dream doesn’t become a nightmare! We don’t want to ever see any of our clients and friends forced to sell because they cannot afford their home.

Home Expenses

The true cost of owning a home involves considerably more than the purchase price and the cost of your mortgage. Can you also afford the maintenance, condo fees, property taxes, heating costs, utilities and more?

Your objective is to ensure the total cost to maintain your home does not exceed 35% of your total pre-tax monthly income.

We have a useful Affordability Calculator on our website,  which may help you decide how much home you can afford. As always, online tools are no substitute for a consultation with your financial advisor!

Once you have figured out how much you spend in each of these categories, compare with the a typical healthy budget a financial planner might recommend:

1. Housing: 35% of your monthly income.
2. Transit: 15% of your monthly income.
3. Debt Repayment: 15% of your monthly income.
4. Savings: 10% of your monthly income.
5. Living Expenses: 25% of your monthly income.

When you spend more than 35% of your monthly income on housing, you are forced to reduce spending in other areas. Perhaps you can afford it if you have no other debt, but you definitely don’t want to start scrimping on life expenses! Remember, it’s better to be ‘Life Rich’ than to be ‘House Poor’!

Avoiding Being ‘House Poor’

• Make a larger down payment on the home. Not only will this give you more equity on your home, but it will make your mortgage payments smaller and save you thousands over the life of the mortgage.
• Purchase a home that is less than your mortgage pre-approval amount. It may not be your dream home, but a smaller home will be more affordable. You can always upsize to a larger home when you’re financially ready.
• Keep an emergency fund. You can never predict when something will break, or there might be a temporary or permanent income change. A dedicated emergency fund that is otherwise untouched could be the difference between living comfortably through a challenging time or being house poor.

What to Do If You Are Currently ‘House Poor’

• Get a second job. This is not always a practical action, especially if there are children in the picture, but a second job could give you the funds you need to keep your home and your lifestyle at their current level. Even a few hours a week at a part-time job or engaging in the “gig economy” can make a difference.
• Rent a part of your home. Charging rent can increase your income, plus a renter will often pay for part of the utilities. If you don’t want someone living in your home permanently, you could consider renting out a room on Airbnb.
• Refinance or downsize. If all else fails, it might be time to consider moving into a smaller home that will work better within your budget.

We are not financial professionals, but if you would like to discuss what you can afford, don’t hesitate to give us a call! At the very least, we will direct you to a competent finance professional if your questions are beyond our abilities to answer.

Check our other blogs under Real Estate 101 – that might give you answers about buying or selling a home.

The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.