Is your mortgage too big? Signs you’re house poor

Getting approved for a mortgage doesn’t mean you can afford it; here’s how to tell the difference before it costs you.

Buying a home in today’s U.S. market looks very different from it did just a few years ago. Mortgage rates are sitting around 6–7%, home prices are high, and incomes are only slowly catching up.

Even in a challenging environment, many buyers can still get loans approved. However, just because someone qualifies for a loan doesn’t mean they can comfortably afford the monthly payments. The financial numbers used to approve loans can differ greatly from what people actually experience in their everyday lives.

What does “house poor” actually mean?

Being “house poor” means you have enough money to pay your mortgage each month, but after that, you struggle to cover other expenses. It happens when the costs of owning your home, like the mortgage, property taxes, insurance, and maintenance, consume a big chunk of your income.

As a result, you find it hard to save money, your spending is tighter, and you have less room to make changes or enjoy life. You’re not in financial trouble, but aren’t making progress either. The U.S. Department of Housing and Urban Development has a definition for what it means to be house poor or “cost-burdened.” If a family is spending more than 30% of its income on housing, it’s considered to be under financial strain.

According to a 2024 study, about 44.20% of owner-occupied households in the United States are severely house-poor, spending more than half of their income on housing costs. Many people don’t realize they’re in a tough spot financially until they’ve been dealing with it for a while. If you’re worried your monthly costs are too high, here are 5 signs that you might be “house poor”: 

1, Living paycheck to paycheck: You find yourself struggling to get by each month, even though you earn a decent salary.

2, No emergency fund: You either have used up any savings you had set aside for emergencies or never managed to create one.

3, Cutting back on retirement savings: You’ve stopped putting money into your 401(k), or you’ve only contributed just enough to get your employer’s match.

4, Long-term credit card debt: You’re not able to pay off your credit card debt, and it’s only accumulating.

5, Reducing essential expenses: You’re cutting back on things that are necessary, like your child’s activities, regular doctor visits, or urgent car repairs that you’ve been delaying.

Recently, on The Ramsey Show, a single mom shared that her take-home pay was about $6,200 a month and that her mortgage payment was nearly $3,800. Even with some extra money from child support, more than half of her income went toward her home. She wasn’t missing her payments, but there was hardly anything left for other important expenses. This is what being house poor looks like: a struggle to get by rather than thrive financially.

The numbers: How much mortgage is too much?

When it comes to figuring out how much you are spending on your mortgage, there are some general guidelines that can help.

The 28% rule says no more than 28% of your gross monthly income should go toward housing, principal, interest, taxes, and insurance. If it does, you are paying more than you should!

The 36% total debt rule extends that cap to all recurring debt combined, including car loans, student loans, and credit cards.

It’s important to note that while lenders may approve you for a mortgage even if your debts account for 43% or more of your income, just because they say you can borrow that much doesn’t mean it’s a good idea. It’s important to ensure you can comfortably afford those payments without stretching your finances too thin.

How to calculate what you can actually afford?

Here’s a simple way to figure out your monthly housing costs. First, gather all your monthly expenses related to your home, which include:

1. Your mortgage payment (both principal and interest).

2. Property taxes and homeowner’s insurance.

3. Any fees you pay to a homeowners’ association (HOA) if you live in a community that requires it.

4. A realistic estimate for home maintenance: A common rule of thumb is to budget about 1% of your home’s value each year, then divide that by 12 for a monthly amount.

Once you’ve added all these costs together, divide the total by your monthly income before taxes. This will show you a percentage of your income that goes towards housing.

But don’t stop there! Subtract your fixed monthly expenses, such as bills and other necessities, from your take-home pay (what you actually bring home after taxes). The amount you have left over is what you can use for savings, leisure, and unexpected expenses.

Here’s something important to remember: two people can have the same percentage of their income going towards housing, but their situations can be very different. Consider two scenarios side by side:

A dual-income couple earning $200,000 a year (after tax) and spending 35% on housing may still have roughly $10,000 left each month after paying their mortgage.

Now, think about a single parent making $70,000 a year who also spends 35% on housing. They would have about $3,500 left for all their expenses, like childcare, groceries, transportation, healthcare, and retirement savings.

While the percentage looks the same, the financial situations of these two households are completely different. Variables like how many children you have, the cost of living in your area, job stability, and whether you have a second income can all change what that percentage really means for you.

Why this matters

Buying a home is often seen as a smart investment. Over time, people build equity, their home’s value goes up, and they pay off their mortgage. However, this plan can fall apart if the monthly payments are so high that there is little money left for other important things. If owning a home makes it hard to save money, maintain the property, or handle unexpected costs, it can lead to financial trouble.

The common advice to “buy as much house as you can afford” is starting to look risky, especially now. Lenders may approve loans based on their own safety rather than what’s best for you. So before you buy a home, or even if you already own one, it’s important to consider not just whether you can afford the monthly payments, but also whether those payments leave you enough money for other necessities, emergencies, and future savings.

The aim of owning a home shouldn’t be to get the priciest one your income allows. Instead, it should be about finding a home that fits comfortably into your overall financial situation, giving you the freedom to live well and manage your expenses without stress.