What to Do After Realizing You’re ‘House Poor’

How to figure out if you’re really house poor

Math is a crystal ball that can reveal whether you’re house poor or at risk of becoming house poor. The U.S. government advises that your total debt load (aka your debt-to-income [DTI] ratio) shouldn’t be more than 36%. That means that you shouldn’t be spending more than 36% of your gross income on debt maintenance—including your mortgage. If you make $120,000 a year, for example, your monthly gross income is $10,000, so your debt payments (including credit cards, mortgage, and everything else) shouldn’t be more than $3,600. Keeping track of your DTI after a home purchase can offer you an early warning sign that you’re at risk of becoming (or already are) house poor.

So let’s say you’re tracking your DTI and after a few rough months you realize you’ve achieved the American nightmare and become house poor. What can you do about it?

Increase income, lower expenses

First, let’s get the obvious out of the way: “House poor” is a fancy way of saying “poor,” so your first order of business is to change the money conversation. A second job or a side hustle to increase your income will help (at the expense of your sanity and enjoyment of your life, of course), as will reducing your expenses as much as you can stand. You can also consider selling some stuff if you have anything worth selling.

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Something to think about is whether hanging onto the house is worth it. If you can sell it and pay off the remaining mortgage, it might be a better idea to admit defeat, even if you take a hit and lose some of your equity. It’s easy to become emotionally attached to a property, especially if it’s a dream home you’ve been working towards for years. But if you’re already house poor there is a risk that you will spend several miserable years working and scrimping—and still lose the house, possibly in a foreclosure situation.

It’s a different scenario if you’re years deep into a mortgage and have a ton of equity. The key here is to sit with the numbers and have a definitive plan for covering your housing costs—and for dealing with the emotional costs of devoting most of your energy towards paying your bills.

A possible alternative to increasing income is debt consolidation. Rolling up several debts into one big lump can reduce the overall monthly payments you have to make, and possibly reduce the overall interest you’re paying on multiple debts as well.

Another strategy to reduce expenses is to eliminate Private Mortgage Insurance (PMI) payments, if you have them. Typically PMI goes away when you achieve 22% equity in the property, but it sometimes takes time for your lender to realize this has happened, especially if it happens because of rising property values that give you more equity. If you think your house has increased enough in value to give you that magic 22%, having it appraised might be worth your time if you can stop making PMI payments on top of your mortgage.

Monetize the house

If you’ve done the budgeting work to increase income and/or decrease expenses and you’re still struggling, you can try to find ways to turn your property into positive income generator. This could be as old-school as getting a roommate or two to occupy your spare bedrooms and pay you rent (not to mention splitting up your utility bills), or you could rent the house part-time through a short-term rental platform like Airbnb.

Of course, most of us would like to think we’re leaving annoying roommates and hounding people for their share of the internet bill for good when we buy a house, so have a good think on whether going this route is worth it to you. Renting in any form can also put a lot of wear and tear on your house, as you’ll have more people using its infrastructure—and some of them simply won’t care as much about the property as you do, because they don’t own it.

Refinance your debt

A lot of folks don’t realize that if you have what’s known as a conventional mortgage, you can refinance that sucker just about any time you want to (if you have an FHA loan, a “jumbo” loan, a VA loan, or a loan through the Department of Agriculture, it’s a bit more complicated). Refinancing your mortgage essentially swaps your current loan for a new one. If interest rates have dropped since you bought your house, you can often get a much better rate. You can also extend or shorten the term, which can have a huge impact on your monthly payments. And if you have a lot of equity, you can sometimes cash out a lot of it, which can help with immediate expenses.

The nuclear option

If the conditions that are making you house poor are likely to be permanent, or if the idea of rearranging every aspect of your life in order to afford your house exhausts you, you can always consider the nuclear option: Sell the house. Sometimes it’s just best to admit that mistakes were made. Do the math: Can you plausibly pay off the mortgage balance from a sale? Can you afford a Realtor’s fee or other expenses (e.g., necessary repairs)? Will you owe any tax for capital gains if you sell (especially if you haven’t owned the house for more than 2 years)?

Selling the property might give you the opportunity to buy a smaller, less-expensive home, or at least rent a place with a much lower monthly cost. It might be an emotional decision—it might feel like a defeat or setback—but when your other option is a few miserable months or years followed by a foreclosure or similar financial disaster, it might make the most sense.