How to Make Ends Meet When You're House Poor


Your home is supposed to be a source of joy, your respite from the rest of the world. But if you can barely afford your housing expenses each month, the pride of owning a home can quickly turn to dread. (See also: 8 Signs You're Paying Too Much for Your Mortgage)

Being house poor

Mortgage lenders say that your total monthly debts, including your mortgage payment, should never equal more than 43 percent of your gross monthly income, your income before taxes are taken out. Financial professionals also say that your housing costs alone ideally should never exceed more than 28 percent of your gross monthly income.

If you ignored those percentages when taking out your mortgage, or if a job loss or other financial crisis has reduced your income since you originally bought your home, you might now be feeling the financial pinch of paying for a house that simply consumes too much of your monthly income.

Sometimes being house poor is a temporary condition. Maybe you've lost a job, but know that you can afford your home once you find a replacement. Maybe you've suffered an illness or injury that has kept you from working, but you will soon recover enough to begin earning again. Other times, it's a more permanent condition. You simply have a house that is too expensive for your income, even when that income is at its normal levels.

If you're in the latter situation, the best decision might be to move and buy a home that is more affordable. If the house-poor problems you face are only temporary, though, you might be able to hold on until your financial situation improves.

Fortunately, there are steps you can take if you find yourself struggling to make those housing payments each month.

Can a loan modification help?

Lenders might be willing to modify your mortgage to make it more affordable for you. Modifications might be simple and temporary, such as suspending your mortgage payments for two or three months as a way to allow you to resolve a temporary financial crisis without missing a payment. Or a modification can be more substantial: Lenders might change the terms of your loan, perhaps turning your 15-year loan into a 30-year one, leaving you with smaller monthly mortgage payments. They might also reduce your interest rate, again dropping your monthly payment.

Lenders are not obligated to modify your mortgage loan, of course. But you won't find out if they're willing to make these changes if you don't call.

Refinancing might help

You might also try to refinance your existing mortgage to one with a lower rate or longer term. This will drop your payments, maybe to a level that you can more easily afford.

Be aware, though, that refinancing isn't free. It might cost you $2,000, $3,000, or more to refinance, depending on the size of your loan — though you can usually roll these closing costs into your new loan instead of paying them upfront in one lump sum. Refinances take time, too. It can take 30 days or more for a refinance to close, so make sure you don't miss any payments during this time.

Cutting expenses

If staying in your home and reducing your monthly financial stress is a priority, then cutting expenses is a crucial step. You might not be able to lower your mortgage payment or property taxes, but you may be able to lower your utility bills. Cutting an expensive cable package or adjusting the thermostat by a few degrees can save you a substantial amount of money each month.

Take a hard look at your budget and make the cuts. You might miss fun events and spend more time batch cooking, but it's worth it if you can keep your home. You might also take bigger steps. Is your monthly auto payment high, too? Consider selling your expensive car and buying one that comes with a smaller monthly payment.

Get a side gig

You can also boost your monthly income by taking a side job — anything from driving for a ride-sharing service like Lyft, to freelance writing, to a shift at your local grocery store. (See also: 15 Ways to Make Money Outside Your Day Job)

These jobs might not be glamorous, but if they boost your income each month, they can make those housing payments seem less fearsome. Again, you'll have to determine if working extra hours at a side job is worth being able to stay in your home.

Prioritize your home spending

Your mortgage is just one cost of owning a home. There's also the cost of maintenance, which financial experts say you should expect to spend about 1 percent of your home's purchase price on each year.

You can't avoid maintenance. If you do, that dream home of yours might fall down around you. But you can prioritize your spending, something that can trim your monthly expenses. Don't spend money on a major bathroom remodel, or other purely cosmetic changes. But if your gutters need cleaning, your walls need painting, and your driveway needs sealing, do spend on those fixes, and do as much of it as possible on your own. Much of the cost in home repairs is in the labor. If you can do something safely and properly, doing it yourself will save a lot of money. Never try something that is beyond your skill and knowledge. YouTube videos can only take you so far. (See also: 10 DIY Jobs Homeowners Should Avoid)

Consider selling

If you are in danger of missing your mortgage payments, a refinance or modification isn't possible, and budget cuts won't make enough of an impact, it is time to consider selling your home.

No one wants to give up on their home, especially if you consider it a dream residence. But it's simply not viable to think you can live 15 or more years scraping together for housing payments.

If you want to sell quickly, a short sale might help. In a short sale, your lender allows you to sell your home for less than what you owe on your mortgage. For instance, if you owe $250,000 on your loan, your lender might approve a short sale for $225,000. By offering your home at a lower price, the hope is that it will sell at a faster pace, before you have to miss any mortgage payments.

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