Let Us Understand What Does House Poor Mean.
‘House Poor’ is a personal situation in which person spends a large percentage of his income towards paying Housing EMI, Property taxes, Property Repair & Maintenance charges. This person has a problem with meeting other expenses such as paying regular monthly bills and other financial obligations.
Why such ‘house poor’ situation arises?
There is a difference between ‘Poor’ & ‘House Poor’, don’t mix it up. Poor means having lack of money to meet day to day expenses or live a standard life. Whereas House Poor is the situation created by a person himself by buying more house than he affords.
Nowadays there is the fashion, you may call a tendency, of buying a Larger & Bigger home/Second home/ weekend home/holiday home etc. which people think suits their lifestyle, profession, personalities etc. Banks have become more generous, they offer 80% to even 90% of the property value as the loan amount. People buy the real estate by taking loans from bank & paying down-payments from their savings.
The situation of ‘House Poor’ does not happen overnight, it takes time, even months, after moving/ investing in a house. A situation arises where you are unable to cope up financially to meet your day to day expenses.
Thus you may have Lakhs or Crores worth of property, but you may struggle to meet other financial obligations. This horrible situation is called as ‘House Poor’ situation.
How to avoid this ‘house poor’ situation?
Financial Experts says your payment towards housing (EMI, Taxes, Maintenance etc.) shall be less than or equal to 25% of your take-home income amount. Anything between 25% to 30% will be an Alert. Banking EMI generally is 40% of your total income salary which pushes you to a ‘House poor Situation’. The best way is to wisely invest in property such that your property outgoing expenses shall remain under or near to 25% of your income & adjust EMI tenures accordingly.
Other things that can make you ‘House Poor’
- Loss of your Job (Temporary / Permanent)
- Loss of Job of your Spouse (Temporary / Permanent)
- Increase in Family member (Birth of a Child / Twins )
- Sudden illness in family member
- Unexpected Expenses
Study the Situation, Is it Temporary or Going to long last, act accordingly
Always study the situation & determine if it is temporary or permanent. If it is temporary, project the duration. Cutdown some expenses such as expenses towards entertainment, nonimportant activities etc. You shall be ready to make Short-term sacrifices. If the situation is going to last for longer duration i.e more than a year or so, you need to plan it meticulously. Job switchover, business restructuring, freelance jobs, Extra job etc. shall be planned. Last but not the least you may have to take a big decision of Selling Off your Property which made you House Poor & move to some other affordable locality.
Before moving to other cheaper / affordable locality & purchasing another home, you should plan a budget framework. Keep your payments under or at 25% percent of your current take-home pay, and set your property budget at 2.5 times your current annual CTC. Never Ever rely on what the bank is willing to lend you. Also do not plan on salary increases, either. You should also make sure you chose right EMI Plan with a fixed or partly fixed interest rate to prevent your payment from increasing.
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Blogger is Civil Engineer and Quantity Surveyor by Education and is Founder of Property Advisory Portal “investon.in”.
Investon.in Guides the Property Buyer throughout his Property Purchase Journey, right from choosing the Property to acquiring it.
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