4 Creative Offers for Selling Your House if You’re House Poor
Are you struggling to make ends meet despite owning a house? You might be house poor. Being poor means spending too much of your income on housing expenses, leaving you with little money for other necessities or savings. In this post, we’ll discuss what it means to be house poor, how to avoid it, and what to do if you’re already in that situation. We’ll also look at predictions for the future of homeowners, expert opinions on the issue, and the benefits of working with an investor when selling a house.
House Poor Definition
Being house poor means a significant portion of your income goes towards housing expenses, such as mortgage payments, property taxes, insurance, utilities, and maintenance costs. If you’re house poor, you might have little or no money left over for other expenses, such as food, transportation, healthcare, or entertainment.
The definition of being house poor varies depending on your location and income level, but a common rule of thumb is that housing expenses should not exceed 30% of your income. If your housing expenses exceed that, you risk being house poor.
Signs of being house poor include:
- Struggling to pay bills or make ends meet
- Relying on credit cards or loans to cover expenses
- Having little or no emergency savings
- Cutting back on necessities or skipping payments to afford to house
- Feeling stressed or anxious about money
Common causes include:
- Overspending on a home that’s too expensive for your income level
- Underestimating the actual cost of homeownership, such as property taxes or maintenance expenses
- Having unexpected expenses, such as job loss, illness, or divorce
- Living in a high-cost area with limited affordable housing options
- Having high debt levels, such as student loans or credit card debt, that reduce your disposable income
What to Do if You Are House Poor
If you find yourself being house poor, there are several strategies you can use to improve your financial situation. These strategies involve reducing your housing expenses, increasing your income, or combining both. Here are some options:
- Refinancing: Refinancing your mortgage to a lower interest rate or a longer term can lower your monthly payments and help you save money over time. For example, if you have a 30-year fixed-rate mortgage of $200,000 at 4% interest, your monthly payment is $954. If you refinance to a 30-year mortgage at 3% interest, your monthly payment would be $843, saving you $111 per month or $39,960 over the life of the Loan. However, remember that refinancing can come with fees and other costs, so be sure to calculate the break-even point before making a decision.
- Downsizing: Downsizing to a smaller or more affordable home can reduce your housing expenses and save money for other expenses. For example, if you’re currently paying $1,500 per month for a 3-bedroom house, downsizing to a 2-bedroom apartment costing $1,000 per month could save you $6,000 yearly. However, downsizing may involve additional costs like moving expenses, rent deposits, or storage fees.
- Renting out Part of the Property: Renting out part of your home to a roommate or tenant can provide additional income to cover your housing expenses. For example, if you have a spare room that you rent out for $500 per month, that’s $6,000 per year that you can use to pay your mortgage or other expenses. However, renting out part of your property may involve additional costs, such as insurance, repairs, or legal fees.
- Seeking Financial Advice: Professional financial advice from a financial planner or credit counselor can help you develop a comprehensive financial plan that includes debt management, savings, and investment strategies. For example, a financial planner could help you prioritize expenses, negotiate with creditors, or develop a plan to pay off debt. They could also help you identify ways to increase your income, such as starting a side business or investing in stocks or real estate.
- Loan Modification: If you’re having trouble making your mortgage payments, a loan modification may be an option. A loan modification is a change to the terms of your mortgage that can lower your monthly payment and make it more affordable. For example, a loan modification may involve extending the duration of your mortgage, reducing the interest rate, or forgiving some of the principal balance. However, keep in mind that loan modification can have long-term consequences, such as increasing the total amount of interest you pay over the life of the Loan.
Example Calculation: Downsizing
Let’s say you currently own a 3-bedroom house that costs $2,500 monthly in mortgage payments, property taxes, insurance, utilities, and maintenance. However, you need help to make ends meet and want to reduce your housing expenses. So you decide to downsize to a 2-bedroom apartment that costs $1,500 monthly.
To calculate the savings, you can compare the two scenarios over a year:
- Original Housing Expenses: $2,500 x 12 = $30,000 per year
- Downsized Housing Expenses: $1,500 x 12 = $18,000 per year
- Savings: $30,000 – $18,000 = $12,000 per year
You could save $12,000 per year or $1,000 per month by downsizing to a more affordable home. However, downsizing may involve additional costs like moving expenses, rent deposits, or storage fees.
Example Calculation: Renting out Part of the Property
You own a 4-bedroom house and have a spare room that you can rent out for $500 per month. You need help to make ends meet and want to increase your income. You decide to rent out the spare room.
To calculate the additional income, you can multiply the monthly rent by the number of months in a year:
- Additional Income: $500 x 12 = $6,000 per year
By renting out part of your property, you could earn an additional $6,000 per year or $500 per month. However, renting out part of your property may involve additional costs, such as insurance, repairs, or legal fees.
Predictions for the Future of Homeowners
The number of house poor homeowners is expected to increase as housing costs continue to rise and wages remain stagnant. According to a recent report by Harvard University’s Joint Center for Housing Studies, more than 18 million households in the US are currently cost-burdened, meaning they spend more than 30% of their income on housing expenses. This includes nearly half of all renters and a quarter of all homeowners.
There are several factors contributing to the rise, including:
- Housing Costs: Housing costs have been rising faster than wages in many parts of the country, making it harder for households to afford a decent home. According to the same report by Harvard University, the median renter household in the US spent 30% of its income on housing in 2020, up from 26% in 2001. The median homeowner household spent 18% of its income on housing in 2020, up from 14% in 2001.
- Limited Affordable Housing Options: In many high-cost areas, such as California, New York, and Florida, there is a limited supply of affordable housing options, which drives up the cost of housing for everyone. This is partly due to zoning laws, building codes, and other regulations that limit the supply of new housing and the high demand for housing in these areas.
- Stagnant Wages: Wages for many workers have remained stagnant in recent years, making it harder for households to keep up with rising housing costs. According to the Economic Policy Institute, the typical worker’s wages have grown by only 15% since 1979, while productivity has increased by 253%.
- Government Policies: Government policies, such as tax incentives, subsidies, and zoning laws, can have a significant impact on the affordability of housing. For example, some tax incentives and subsidies favor homeownership over renting, which can drive up the cost of housing for everyone. Similarly, zoning laws and building codes can limit the supply of affordable housing, which can drive up the cost of housing for everyone.
Experts predict that house poor homeowners will continue to rise in the coming years, especially in high-cost areas with limited affordable housing options. Possible solutions to the issue include:
- Increasing Affordable Housing Options: Governments can increase the supply of affordable housing by providing subsidies, tax incentives, and other incentives for developers to build more affordable housing. They can also reform zoning laws and building codes for more diverse and affordable housing options.
- Providing Financial Assistance to Low-Income Homeowners: Governments can provide financial assistance to low-income homeowners, such as rental assistance, mortgage assistance, or property tax relief. They can also provide grants or loans to help homeowners make home repairs or upgrades that improve their quality of life.
- Reforming Government Policies: Governments can improve policies to promote more equitable and affordable housing. For example, they can eliminate tax incentives that favor homeownership over renting or increase funding for public housing or other affordable housing initiatives.
Industry experts have different opinions on the causes and solutions. Some experts argue that the problem is primarily due to high housing costs and stagnant wages, while others point to poor financial planning and overspending on housing.
According to David Reiss, a law professor at Brooklyn Law School, “Being house poor is a problem that’s been around for a long time, but it’s becoming more common as housing costs continue to rise. The best way to avoid being house poor is to choose an affordable home that fits your budget and to have a comprehensive financial plan that includes savings, debt management, and emergency funds.” (source: CBS12)
In an interview with CNBC, financial expert Ted Rossman stated that “house poor can mean different things to different people, but at its core, it means being stretched thin by housing expenses. The best way to avoid being house poor is to buy a home you can truly afford, which is a lot harder than it sounds. Ideally, your mortgage payment, property taxes, insurance, and other housing expenses should total no more than 28% of your gross monthly income.” (source: CNBC)
Real estate expert Julie Gurner suggests that being house poor is often the result of poor financial planning and overspending on housing. In an interview with Lifehacker, she stated, “Often people become house poor because they’re not planning for their financial goals or future expenses. They’re putting all their money into their home and not leaving themselves any wiggle room for emergencies, savings, or investing.” She recommends creating a budget and setting financial goals to avoid overspending on housing. (source: Lifehacker)
Despite these different opinions, most experts agree that being house poor is a serious issue that can have long-term consequences for a household’s financial well-being and quality of life. Therefore, it’s essential for homeowners to understand their housing expenses and to make informed decisions about buying, renting, or refinancing a home. In addition, seeking professional financial advice, developing a comprehensive financial plan, and considering alternative housing options, such as downsizing or renting out part of a property, can help prevent or address being house poor.
Creative Offers When Selling a House
When working with an investor, there are several creative offers that can be made to help sell your house quickly and easily. Here are four types of creative offers to consider:
- Seller Financing: With seller financing, the investor purchases the property from the homeowner and the homeowner becomes the lender, financing the purchase for the buyer. This can be a helpful option for buyers who may not qualify for traditional financing or who need more flexible terms.
- Subject To: With a subject-to offer, the investor purchases the property subject to the existing mortgage. The investor takes over the mortgage payments, and the homeowner is released from their mortgage obligation. This can be a helpful option for homeowners who are struggling to make their mortgage payments or who need to sell their property quickly.
- Lease Options: With a lease option, the investor leases the property from the homeowner with an option to buy the property at a later date. This can be a helpful option for homeowners who want to generate rental income or who want to sell their property at a later date.
- Hybrid: A hybrid offer combines elements of seller financing, subject-to, and lease options to create a custom offer that works for both the investor and the homeowner. This can be a helpful option for homeowners who need to sell their property quickly or who are facing financial difficulties.
Benefits of Working with an Investor
When selling a house, working with an investor can offer several benefits for homeowners. Investors typically have cash on hand and can make quick purchases, which can be particularly helpful for homeowners facing financial difficulties or needing to sell their property quickly. Here are some benefits of working with an investor:
- Quick Sales: Because investors typically have cash, they can make quick purchases and often close on a property in as little as a week. This can be particularly helpful for homeowners facing financial difficulties or needing to sell their property quickly.
- No Repairs or Upgrades Required: Investors are typically willing to purchase a property in its current condition without requiring any repairs or upgrades. This can be particularly helpful for homeowners unable to make repairs or upgrades due to financial difficulties or other reasons.
- No Commissions or Fees: Unlike a traditional real estate agent, homeowners who work with investors do not need to pay commissions or fees. This can save homeowners thousands of dollars in fees and make selling a property more affordable.
- Flexible Purchase Terms: Investors are typically willing to work with homeowners to find creative purchase terms that work for both parties. For example, an investor may be helpful to offer a lease option or seller financing, which can generate income for the homeowner and make the property more attractive to buyers.
How an Investor Can Help Those Who Are House Poor
For homeowners, working with an investor can be an advantageous option. Investors can help homeowners find creative solutions to their financial difficulties and offer flexible purchase terms that can help generate income and reduce housing expenses. For example, an investor may be willing to offer a lease option or seller financing, which can help homeowners generate rental income or sell their property later. Additionally, investors may be ready to purchase a property in its current condition without requiring any repairs or upgrades, saving homeowners money and reducing their financial burden.
Being house poor can be a challenging and stressful situation, but there are several strategies that homeowners can use to improve their financial situation. By refinancing, downsizing, renting out part of their property, seeking financial advice, modifying their Loan, or working with an investor, homeowners can reduce their housing expenses or increase their income. Additionally, being informed and proactive about their housing expenses and financial planning can help prevent or address being poor. If you’re struggling and need help finding a solution, consider working with an investor who can offer quick sales, flexible purchase terms, and no commissions or fees. Contact Iconic Home Solutions today at 803-567-2851 to learn how we can help you sell your house quickly and easily.
Frequently Asked Questions
What does it mean to be house poor?
Being house poor means a homeowner spends a disproportionate amount of their income on housing expenses, such as mortgage payments, property taxes, and maintenance costs. This can leave them with little money for other expenses, leading to financial difficulties.
How do I know if I’m house poor?
You may be considered house poor if you spend more than 30% of your income on housing expenses. Additionally, if you’re struggling to pay your bills, save for emergencies, or make ends meet, you may be experiencing the effects of being house poor.
How can I avoid being house poor?
To avoid being house poor, choosing an affordable home that fits your budget and having a comprehensive financial plan that includes savings, debt management, and emergency funds is essential. Working with a financial advisor or real estate agent can also help make informed decisions about housing expenses.
What are some strategies for reducing housing expenses?
Strategies for reducing housing expenses include:
- Refinancing your mortgage.
- Downsizing to a smaller home or apartment.
- Renting out part of your property.
- Seeking financial assistance or grants.
- Working with an investor who can offer creative purchase terms.
How can I increase my income?
Increasing your income can help you reduce your housing expenses and improve your financial situation if you’re house poor. Some ways to increase your revenue include working a second job, starting a side business, renting out part of your property, or seeking financial assistance or grants.
How can I modify my mortgage to reduce my housing expenses?
Modifying your mortgage can be a helpful strategy for reducing your housing expenses. This can include refinancing your mortgage to a lower interest rate or adjusting the terms of your Loan to reduce your monthly payments.
How can I sell my house quickly ?
If you’re house poor and need to sell your home quickly, working with an investor can be helpful. Investors typically have cash on hand and can make quick purchases, which can be particularly helpful for homeowners facing financial difficulties or needing to sell their property quickly.
What are some alternative housing options to consider if I’m house poor?
Alternative housing options to consider include:
- Downsizing to a smaller home or apartment.
- Renting out part of your property.
- Moving to a less expensive area with a lower cost of living.
What should I do if I struggle to pay my bills and make ends meet?
If you’re struggling to pay your bills and make ends meet, seeking financial assistance and advice is essential. This can include working with a financial advisor, seeking financial aid or grants, or exploring debt management options.
What are some long-term solutions for addressing?
Long-term solutions for addressing being house poor include increasing your income, reducing your housing expenses, and developing a comprehensive financial plan for savings, debt management, and emergency funds. Additionally, seeking financial advice and working with a reputable real estate agent or investor can help you make informed decisions about housing expenses and financial planning.
- CBS12, “Homeowners ‘house poor’ pay more than 30%: Port St. Lucie rank 27 in Florida,” (May 4, 2023), https://cbs12.com/news/local/homeowners-house-poor-pay-more-than-30-port-st-lucie-rank-27-florida-may-4-2023
- Dallas Business Journal, “House poor? You’re not alone in Dallas, Garland,” (May 4, 2023), https://www.bizjournals.com/dallas/news/2023/05/04/house-poor-dallas-garland.html
- CBS Miami, “Miami Area Ranks No. 1 In Nation For Cities With Most ‘House-Poor’ Homeowners,” (August 3, 2021), https://www.cbsnews.com/miami/news/miami-area-ranks-no-1-in-nation-for-cities-with-most-house-poor-homeowners/
- Lifehacker, “What to Do After Realizing You’re House Poor,” (August 16, 2018), https://lifehacker.com/what-to-do-after-realizing-you-re-house-poor-1850088721
- Quicken Loans, “What Is House Poor?,” (January 18, 2019), https://www.quickenloans.com/learn/house-poor
- CNBC, “What does it mean to be ‘house rich, cash poor’? And how to avoid it,” (June 23, 2020), https://www.cnbc.com/select/what-does-it-mean-to-be-house-rich-cash-poor/
- Realtor.com, “What Is ‘House Poor’?,” (September 7, 2021), https://www.realtor.com/advice/finance/what-is-house-poor/
- Yahoo Finance, “How to Avoid Being House Poor,” (September 1, 2020), https://finance.yahoo.com/news/avoid-being-house-poor-000019764.html
- The Mortgage Reports, “How to avoid being ‘house poor’ (podcast),” (March 8, 2021), https://themortgagereports.com/100460/how-to-avoid-being-house-poor-podcast