There are nearly 17 million homeowners in the U.S. who cannot afford the house they live in. For renters, that number is 20 million. If you are spending most of your income on house related expenses, you are house poor. And living above one’s means isn’t something that just low and middle-income families do; wealthy homeowners also overspend. GoBankingRates.com wrote an article about 16 celebrities who went broke and most of them lost their money due to poor financial decisions.
On paper, a person who earns $350,000 per year could be pre-approved for a $600,000 to $800,000 loan depending on their monthly debt, down payment, and loan term. There are many variables to consider but Bankrate.com has a mortgage calculator online that can offer a homebuyer a ballpark figure for a loan amount, and an idea of what the monthly mortgage payment would be based on interest rate.
For an individual earning $350,000 per year and bringing home roughly $20k per month after taxes, a $4k-$5k per month mortgage payment in addition to utilities, HOA fees, insurance, repairs, maintenance, etc. would equal at least 30% of their income being spent on home related expenses making them house poor.
California has more homeowners living above their means than any other state in the U.S. In fact, 9 out of the top 15 American cities with the most house poor homeowners are in California. And you can tell by the number of homeowners in each city and the median home value that these are wealthy communities with wealthy homeowners.
Before buying a home, no matter your income, talk to one of our financial experts for advice. We have a fiduciary duty to do right by our clients. Mortgage companies aren’t going to share common sense advice with potential clients to help prevent them from living above their means. They simply do the math and offer figures. A Realtor isn’t going to recommend less house to a client. More house means more commission. Alloy Wealth Management is committed to helping clients understand their current financial situation and better define their goals. Call 800-689-3935 to schedule a consultation.