House Poor- safer than Life Poor
I talk to people every day about what they want to spend on a house. I think the most common statement today is, “We don’t want to be House Poor”
At first I thought, “well that is smart”. Unlike in the early 2000’s when everyone over extended, housing bubble, mass foreclosures, values dropping, you know the story, people are being smart and not spending more than they can afford. However, the conversation usually continues with statements like, “our bank approved us for a lot more” but what we want it a payment lower than typical apartment rent. We would like to own a house with a payment of $900/mnth including everything. Excuse me!!!
First, sadly in today’s world that is just not going to happen. Take out a couple hundred dollars a month for taxes and perhaps Mortgage insurance and you are not going to buy and own a house for a mortgage lower than your truck payment. Sorry, I would love to help you, but it is not realistic. Additionally I learn that the bank, in today’s very conservative, post housing bubble restraints has approved them for a far more realistic $1500/mnth but instead they are going to stick with renting.
Since the 1930’s the federal government has been creating programs to promote home ownership. HUD, FHA, USDA, VA loan programs are all created to make home ownership accessible. The reason for this is that smart people learned a long time ago that the best way for people to manage their life financials intelligently is through home ownership. Think of it as a forced savings program. You are going to make a payment every month so someone why not make it an investment in your future. I am going to make the huge leap and speculate that the people who do not want to be “house poor” are not taking 20% of their paycheck each week and sticking it into a retirement account. Instead they are paying rent and putting it in someone else retirement program. Do the math, pay $900 a month over 30 years (assuming it never goes up which we know it does, a mortgage does not) and you have given $324,000 dollars to someone else. I am sure they will thank you.
Now go the other way and buy a house. Lets say you buy a $200,000 house at today’s interest rates with 20% down and your mortgage rates and your payment is $775/mnth add $300 for taxes in my area and you are now paying $175/mnth more than the rent. But roll it out 30 years, pay it off, figure most houses increase in value 100% over 30 years and now you have a $400,000 debt free asset, or savings account. That is a $724,000 swing over renting over 30 years. All because you don’t want to not be able to go out to eat dinner when you want to or some other form of entertainment. Strangely these same people always seem to have $800/mnth in vehicles payments which is another huge waste of money. But I digress.
Today’s banking requirements for Mortgages are very conservative. At an average of 43% DTI the government and banks have a pretty good idea what you can realistically afford after normal life expenses and they will no longer loan you enough to see your fail. But no, they are not accounting for your social life.
If you are going to make monthly payments for some place to live, why put it in someone else pocket so that you can go out and have dinner if you can be putting a large portion of it into your own pocket. We have become very fond of complaining about the division of wealth in this country, but I think some of us are responsible for it ourselves. We gripe about the wealthy apartment owners who take all of our money but we are unwilling to give up the toys to allow ourselves the luxury of owning our own place. Meanwhile we have all of our money tied up in depreciating assets like toys and vehicles while they have it all tied up in investment properties. Who is at fault?
Get house poor, pour your money every month into a mortgage payment that keeps you from wasting it somewhere else. Someday you will be the one with the resources to loan your kids money to buy their first home. What could be more rewarding?