Are we considered House poor?

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tomwood
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Are we considered House poor?

Post by tomwood » Sun Aug 04, 2019 4:28 pm

We purchased our home when our income/jobs were different. Currently we spend about 26% of our Gross family income for our mortgage, utilities and property/school taxes. I know this can’t be a good percentage but is it acceptable, or how far off are we?

Broken Man 1999
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Re: Are we considered House poor?

Post by Broken Man 1999 » Sun Aug 04, 2019 4:31 pm

Your spending is very location driven. You might be overspending in a LCOL area, or you might be knocking it out of the park in a VHCOL.

Which fits you?

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

Topic Author
tomwood
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Re: Are we considered House poor?

Post by tomwood » Sun Aug 04, 2019 4:36 pm

Broken Man 1999 wrote:
Sun Aug 04, 2019 4:31 pm
Your spending is very location driven. You might be overspending in a LCOL area, or you might be knocking it out of the park in a VHCOL.

Which fits you?

Broken Man 1999
I’d consider us in an average location. Nothing close to a big city but it’s still a city.

Grt2bOutdoors
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Re: Are we considered House poor?

Post by Grt2bOutdoors » Sun Aug 04, 2019 4:41 pm

tomwood wrote:
Sun Aug 04, 2019 4:28 pm
We purchased our home when our income/jobs were different. Currently we spend about 26% of our Gross family income for our mortgage, utilities and property/school taxes. I know this can’t be a good percentage but is it acceptable, or how far off are we?
It's acceptable, I'd say the upper boundary should be 28 to 33% (all debt included). Then again, there are folks who are paying alot more than that for rent.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

runner540
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Re: Are we considered House poor?

Post by runner540 » Sun Aug 04, 2019 4:44 pm

Can you still save for retirement, college, next car, etc? Can you spend on some luxuries/wants?

Topic Author
tomwood
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Re: Are we considered House poor?

Post by tomwood » Sun Aug 04, 2019 5:00 pm

Grt2bOutdoors wrote:
Sun Aug 04, 2019 4:41 pm
tomwood wrote:
Sun Aug 04, 2019 4:28 pm
We purchased our home when our income/jobs were different. Currently we spend about 26% of our Gross family income for our mortgage, utilities and property/school taxes. I know this can’t be a good percentage but is it acceptable, or how far off are we?
It's acceptable, I'd say the upper boundary should be 28 to 33% (all debt included). Then again, there are folks who are paying alot more than that for rent.
If you count all debts, then we must include student loans. That puts us at almost exactly 30%. So we are in the upper category but acceptable, or we are in the slightly too high category? Thank you

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Watty
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Re: Are we considered House poor?

Post by Watty » Sun Aug 04, 2019 5:01 pm

One other factor to consider is how old your are. If you are something like 35 and still likely to advance your career and income while your mortgage payment stays the same then if all goes well in five or ten years your numbers as a percent of income could be a lot better.

You also have to consider it as a percentage of your net worth since the mortgage payment as a percentage of income does not really mean a lot. For example if you only have 10 years left on the mortgage you could refinance with a new 30 year mortgage and have the payment as a percent of income drop a lot. In reality just because you refinanced does not change if you are house poor or not.

ladycat
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Re: Are we considered House poor?

Post by ladycat » Sun Aug 04, 2019 5:19 pm

runner540 wrote:
Sun Aug 04, 2019 4:44 pm
Can you still save for retirement, college, next car, etc? Can you spend on some luxuries/wants?
+1.
You're only house poor if you can't afford the rest of your life the way you want. We paid 26% of our monthly net income for the mortgage (and another 10% for property tax). But we had a 10-year mortgage and our priority was to pay the house off before retirement.

And if you decide you are house poor, then what?

Grt2bOutdoors
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Re: Are we considered House poor?

Post by Grt2bOutdoors » Sun Aug 04, 2019 5:45 pm

tomwood wrote:
Sun Aug 04, 2019 5:00 pm
Grt2bOutdoors wrote:
Sun Aug 04, 2019 4:41 pm
tomwood wrote:
Sun Aug 04, 2019 4:28 pm
We purchased our home when our income/jobs were different. Currently we spend about 26% of our Gross family income for our mortgage, utilities and property/school taxes. I know this can’t be a good percentage but is it acceptable, or how far off are we?
It's acceptable, I'd say the upper boundary should be 28 to 33% (all debt included). Then again, there are folks who are paying alot more than that for rent.
If you count all debts, then we must include student loans. That puts us at almost exactly 30%. So we are in the upper category but acceptable, or we are in the slightly too high category? Thank you
You're overthinking this unless you are not making enough income to support the debt payments. It seems like you are making enough, what I'm saying is, don't take on any more debt and you will be fine. Over time, your student loan balance should decrease, eventually it will be zero. It's acceptable what you have. The maximum P&I, Insurance and Taxes or PITI should be 28%, if you are slightly above it and you are planning to stay in that home, so long as you can make those payments you shouldn't let absolute percentages govern your ability to live.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

mhalley
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Re: Are we considered House poor?

Post by mhalley » Sun Aug 04, 2019 11:58 pm

My understanding is that 28% of gross is what banks are willing to lend, but lots of gurus such as Dave Ramsey think that is too much. He recommends mortgage plus taxes and insurance be no more than 25% of take home pay. This goes out the window if you are in a VHCOL area.

BarbBrooklyn
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Re: Are we considered House poor?

Post by BarbBrooklyn » Mon Aug 05, 2019 6:01 am

https://www.investopedia.com/terms/h/housepoor.asp

Here is an article from Investopedia that lays it out nicely. Are you having financial difficulties?
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

Nissanzx1
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Re: Are we considered House poor?

Post by Nissanzx1 » Mon Aug 05, 2019 6:24 am

26% seems fine. Eventually, the plan should probably include planning for a day when its zero percent but I don’t feel like 26% is crazy at all...

TheOscarGuy
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Re: Are we considered House poor?

Post by TheOscarGuy » Mon Aug 05, 2019 6:29 am

tomwood wrote:
Sun Aug 04, 2019 4:28 pm
We purchased our home when our income/jobs were different. Currently we spend about 26% of our Gross family income for our mortgage, utilities and property/school taxes. I know this can’t be a good percentage but is it acceptable, or how far off are we?
I would say that is high, even adding utilities I am lower than that by a bit. I also think it depends on cost of living where you live.

DVMResident
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Re: Are we considered House poor?

Post by DVMResident » Mon Aug 05, 2019 6:33 am

Very reasonable IMO, but, like others have said needs to be considered in the larger budget context and ability to meet other goals.
Nissanzx1 wrote:
Mon Aug 05, 2019 6:24 am
26% seems fine. Eventually, the plan should probably include planning for a day when its zero percent but I don’t feel like 26% is crazy at all...
OP claims this includes utilities and taxes. These expenses will remain.

basspond
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Re: Are we considered House poor?

Post by basspond » Mon Aug 05, 2019 7:20 am

Depends on how much you are saving for retirement. If over 20% then you are not and will not be house poor. When we first started out our house was 2/3 of our assets. Now thirty years later it is less then 5%.

Bacchus01
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Re: Are we considered House poor?

Post by Bacchus01 » Mon Aug 05, 2019 7:42 am

It’s funny how time andcexperience change perspective.

We own three homes and our total mortgage and taxes are <10% of gross. When I saw your number I thought you are insanely high. Ha.

Yet, then I thought back to when we bought our first house. We were young and crazy. Our mortgage and tax was about 28% of gross and we never, ever felt strapped. We were saving and working and living and having babies and it never felt that tight.

21 years later and I hate writing that virtual check every month.

You’re likely just fine.

deltaneutral83
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Re: Are we considered House poor?

Post by deltaneutral83 » Mon Aug 05, 2019 7:44 am

How would one know if the term hasn't been disclosed? And if doing a 30 are excess monies being invested to exploit leverage or is a 30 being used because the budget is just that stretched. I think 28-30% PITI on a 15 year fixed is a good guideline
Yet, then I thought back to when we bought our first house. We were young and crazy. Our mortgage and tax was about 28% of gross and we never, ever felt strapped. We were saving and working and living and having babies and it never felt that tight.
Yep. You want that % to come down with age and the % of home equity to be less and less as a % of NW as the years go by.

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Sandtrap
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Re: Are we considered House poor?

Post by Sandtrap » Mon Aug 05, 2019 8:18 am

It is common for VHCOL Hawaii residents to spend from 50-70+ percent on housing costs.
Many live in homes worth well over a million yet struggle from month to month to pay bills and eat.
Thus, the plethora of multi-generational, multi-income households under one roof.

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Charon
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Re: Are we considered House poor?

Post by Charon » Mon Aug 05, 2019 2:47 pm

The standard rule of thumb for being housing cost burdened is 30% (e.g., https://www.hud.gov/program_offices/com ... lehousing/ ). Over 30% of the US is burdened by that standard. Severely burdened is 50% (about 15% of the US).

Obviously these rules of thumb are only very broad guidelines. In particular, they don't take into account your income ( https://www.huduser.gov/portal/pdredge/ ... 92214.html ). For example, someone with very high income could spend 40% on housing and still be completely fine (although excommunicated by the Bogleheads).

Also it doesn't take into account other costs. For example, someone in an area with good public transportation might pay more for housing, but be able to live car free, and overall be financially better off.

So I agree with other posters that the question should actually be, do you have enough money for your life? (Including saving for retirement, etc.) If so, you're fine. If not, then you've got the difficult process of changing jobs or changing housing ahead of you (or controlling other life costs).

ohai
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Re: Are we considered House poor?

Post by ohai » Mon Aug 05, 2019 3:10 pm

I am curious to know what OP would do if a majority of responses here said the housing cost was too high.

NotWhoYouThink
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Re: Are we considered House poor?

Post by NotWhoYouThink » Mon Aug 05, 2019 3:35 pm

"considered" house poor by whom? Banks? Your parents? Yourselves? Internet strangers?

If you are able to save to meet your goals, you are fine. If not, then something needs to change - more income or less spending. One arbitrary data point doesn't mean much.

If you are 58 and have no retirement assets you are probably spending too much on housing. If you are 28 and you have growth potential in your careers you are probably not causing any problem with your spending on housing.

Texanbybirth
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Re: Are we considered House poor?

Post by Texanbybirth » Mon Aug 05, 2019 4:03 pm

Using your formula, we are at 30%. We do not feel house poor. Thus, you are not house poor. Did I get that right? I hope you're feeling better about your situation now.

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