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House Rich, Cash Poor? (5 Strategies to Save Money After Closing)

Are you house-poor, meaning your beautiful home is maxing your finances out? I'll show you how to save money in your house, despite already owning it.

Experts say that your housing expenses should be no more than 30% of your monthly budget. Over 5.8% are all too aware that spending half or more of their budget on housing expenses means that there's no money left over to spend on other things.

woman struggling with bills on kitchen table, text overlay "mortgage suffocating your lifestyle?"

Besides that, living maxed out is really no fun at all.

We tend to think of a house as a fixed expense, and for good reason.

Once you sign the hundreds of dotted lines on closing day, you have to come up with your mortgage each month or face foreclosure.

But there are ways to decrease your housing costs, even after signing the book of closing papers.

Hint: are you really struggling? You might qualify for emergency financial assistance.

House Poor Definition – What Does it Mean to Be House Rich and Cash Poor?

The definition of house rich and cash poor, or “house poor” means living in a nice home, but most of your cash flow goes towards the mortgage, maintenance, utility, and other costs to actually live in it. So much so, that even though you're living in an American Dream-Home, you're kind of miserable because you can't spend money on much else.

You definitely, definitely want to avoid this if you can (I know – you might already be in the situation. Hold tight. I've got several strategies for you to decrease your home costs below, even after closing).

How Much of Your Income Should Go Towards Mortgage?

If you give this question to your realtor, they'll likely tell you that 30% or higher of your monthly gross income (that is, total monthly income before taxes, insurance, and other deductions are taken out) should go towards your mortgage.

And if you go off of your pre-approval from the bank? Well, then you might just find yourself in trouble.

For example, my husband and I were pre-approved for $300,000 when we purchased our home 9 years ago. But that represented way too much of our monthly paychecks for our liking.

So, instead, we purchased a home for $165,000 with about a $14,000 down payment.

You know what? That was the smartest decision we ever could have made – to not go with what the bank said we could afford on a loan. Instead of both of us having to work for the last 9 years, I was able to quit my day job in early 2013 to pursue my business full-time (you're reading it!), as well as raise our son when he came into this world in 2015.

Missing out on those two things would've been a price too high to pay for a bigger home.

So, how are you supposed to know how much of your income should go towards your mortgage?

For starters, you might want to look at it as: what mortgage payment can you cover with one person's income instead of two (don't forget you'll need to eat and pay insurance and all the other bills). This is an excellent way to set you up for some lifestyle design, in case one of you decides to start a business like I did, or stay home to raise your future children. Also, if you go this route, then if/when one of you guys gets laid off, you'll still be able to make your mortgage payments + eat.

Need a little more help with this? Let's look at a house poor calculation you can do.

House Poor Calculator – Housing Should Be What Percent of Income?

So, how can you figure out whether you fall into the House Poor category?

Aside from the gut feeling and physical manifestation of juggling bills and living paycheck to paycheck each month (FYI: wondering if being house-poor worth it? Not everyone is upset about being house-poor.), you can use a house-poor calculator to see if you meet the definition.

Note: many experts still talk about 30% being the best number to use – meaning, your total housing costs (this includes mortgage interest, property taxes and maintenance) should be no more than 30% of your monthly gross income. But here's a great article on why that's no longer a good idea.

Use this Real Life Ratio calculator to find out how much your mortgage costs should be, given your income and other bills.

Are you paying more than this? Then subtract what you should be paying (what you just calculated) from your actual mortgage expenses. The difference is what you need to save in costs, using the strategies I outline below.

And if you want to figure out what your percentage is?

Step #1: Add Up Your Monthly Mortgage Costs

You'll need to add together your monthly mortgage payment, homeowner's insurance, property taxes, and maintenance.

Step #2: Figure Out Your Monthly Gross Income

Look at a typical paycheck of yours, and see what the gross number is (before any deductions are made). Then, multiply that by the number of paychecks you get per month.

So, if you get paid bi-weekly, then multiply by 2. If you're paid weekly? Then multiply by 4.

Note: You typically have two months out of the year when you're paid an extra paycheck. So this estimate will be a little lower, but will reflect your monthly cash flow reality. 

Step #3: Divide Your Monthly Mortgage Costs by Your Monthly Gross Income

Take your monthly mortgage costs (example: $1,800), and divide them by your monthly gross income (example: $4,000).

Result for this Example: $1,800/$4,000 = 45%

What category do you fall into? According to the government, you are:

  • Cost Burdened: if your housing costs are greater than 30% of your monthly gross income (that is, total monthly income before taxes and other deductions are taken out).
  • Severely Cost Burdened: if your housing costs exceed 50% of your take-home pay.

House Poor Solutions: What To Do

Did you find out that you're house-poor (or skipped the calculation altogether because you know in your gut that you are)?

By how much would you need to shave your house costs in order to get below that 30% threshold?

Don't fret. You can work yourself out of this situation and get some relief with my suggestions on how to save money on your home after closing below.

Strategy #1: Lower Your Homeowner’s Insurance

First of all, make sure that all of the information is accurate on your current homeowner’s insurance policy.

For example, when I looked over our initial policy, I found that it stated our home was 100 square feet larger than it was.

Naturally, the insurance agents were skeptical, but I was able to produce our survey and inspection to verify that I was correct. This lowered our annual insurance bill by about $50.

Next, you want to shop around for a cheaper homeowner’s insurance policy. Start with your auto insurance company, as when you combine policies you typically are given a discount.

Note: If you have an escrow account, it may take awhile for your payment to be recalculated, as well as for a refund to be given to you in the event that you have overpaid. For example, our bank recalculates once per year, so about five months after we lowered our homeowner’s insurance we received a check in the mail.  

Strategy #2: Fight Your Property Tax Assessment

After you purchase a home, the property tax typically increases on you.

This is because the tax assessor will use the market price that you purchased as the new base for taxes, which is exactly what happened to us! The appraised value of our home rose 7% after we purchased it. This was during the same time that the average Houston home value decreased by 4%, and was based solely on the purchase price of the home.

What I learned is that you can appeal the assessed value of your home. You can check out the whole process in my article on how to fight property taxes, or just read the summary below.

First, I found the website of our tax district. Then I filed a protest online. After that, there was an informal meeting before a formal hearing with the Appraisal Review Board (ARB).

I gathered evidence by researching the costs per square foot of my home versus the other 14 homes on our street.

This gave me a nugget of information: ours was assessed at $49/square foot, while everyone else’s averaged $39/square foot. Next, I took photographs of each of the issues throughout our home (sinking sub-floor in our bathroom upstairs, outdated A/C unit, and our cracked and molding sink vanities.

I also gathered our inspection documents from purchasing the home, and the quotes that I had received to fix the issues above.

During the formal hearing, the people on the board voted to knock 3.9% off of the value, which meant that overall our property was raised by only 3.1%. There have been no further increases in the tax value assessed, so this initial amount of effort has paid itself back three times so far!

Note: If you are nearing retirement age, it is an excellent idea to fight your tax appraisal in a home you expect to stay in. This is because many districts have a ceiling on some of your tax obligations once you reach a certain age (barring any large home improvements you make). In other words, you want to have it as low as possible before locking in that rate for the next 20-30 years.

Strategy #3: Rent Out a Room or Storage Area

My Aunt lives in a great area in Washington D.C. and has done so since her 20s.

In order to afford this, she has rented out 1-3 rooms for the last twenty years. She gets to split the rent/mortgage, utilities, electricity, etc., and meet some very interesting people who have become lifelong friends (well, not all of them).

I had a roommate in my first and second apartment right out of college. While renting out rooms may not be ideal to you, this could quickly free up cash for other expenses and allow you to stay in your home.

If the idea of living with someone else does not appeal to you, think about renting out a room, garage, etc. for storage purposes.

Note: You will want to pay special attention to the details in the contract that you both sign, such as who is responsible for damages, deposits, eviction notices and drivers, etc.

Strategy #4: Refinance Your Loan

With such low-interest rates, it is possible for you to refinance and lower your monthly payment. You may even be able to lower your monthly payment in the process of taking a loan from 30 years to 15 years!

During our home refinance, we went from 5.5% to 3.5%, from a 30-year loan to a 15-year loan, and shaved $103,000 off the price of our loan. This raised our monthly cost by $230.

However, you might want to check now that interest rates are below 3.5% and see if your monthly cost will be lowered on top of lowering the overall interest you will pay on the loan.

Note: Be sure to calculate into your savings the closing costs and amount of time you are likely to be in the home to see if a refinance is worth it to you.

Strategy #5: Tackle FOMO on House Projects

You bought a home, and you likely want to do projects on it. But since you're house-poor…how are you supposed to fund them?

This is something you won't find most people talking about, but the FOMO (Fear of Missing Out) people feel is real.

We were somewhat in this position as well – we had bought a fixer-upper home, and while we weren't house-poor, we were still tackling a bunch of debt so we didn't want to spend money on fixing it up. But…we wanted it fixed up.

Even before Pinterest and its enticing DIY boards, we had big plans for our new home and wanted to get started as soon as possible. But we were faced with a common dilemma: we still had this debt hanging around our necks that we were determined to get out of.

How were we supposed to juggle making our fixer-upper home our own while getting ourselves out of debt as quickly as possible (kind of like the question of how to save money while paying off debt)?

Here are the strategies we used that will also help you and your partner juggle your financial needs and your Pinterest-worthy wants:

Tackle Labor-Intensive, Low-Costing Projects First

When we had just purchased our home, there were a number of areas and projects we had in mind to complete: two bathrooms, the laundry room, upgrading the kitchen, etc. In reality, we did not know the cost of making the upgrades we dreamed about, and quickly learned that they could be steep.

So instead of waiting around until our debt was repaid to start a project, we chose to tackle the labor-intensive/low-cost projects first.

For us, this meant the laundry room, as we were going to repaint it, install some new shelves in the closet, and strip/varnish the built-in shelves. This project kept us occupied for a few months and cost less than $200.

Reduce Your Cost of Project Supplies

You need to think outside of the box for project supplies in order to keep your costs low (this is assuming you'll be DIY'ing and not shelling out for labor).

The first thing you want to do is sign up for any home improvement store mailing lists in your area. Being on the mailing list means you might get coupons in the mail.

Generally, home improvement stores accept competitor coupons, so you can pair these coupons together with whichever store is having a good sale on the supplies you need.

Also, keep in mind places like Habitat for Humanity's Restores where you can score extremely discounted supplies from homes that have been stripped in the area.

These stores function as home improvement outlets where any products that might have been scratched or otherwise not completely perfect are sold at a severe discount. Take advantage of this!

Bonus Tip: if you absolutely have to have something fixed on your home, then do yourself a favor and check out these 7 tips for how to negotiate with a contractor. We learned them through trial and error, and they're gold!

A home purchase is probably one of, if not the, biggest purchase you will make in your lifetime. This is why it is critical for you to prevent being house-rich and cash-poor by adequately projecting the costs of home ownership onto your current budget. However, if you have already closed on a home and are living cash-poor, then know that there are a few ways that may help your situation besides being forced to sell or sitting in foreclosure.

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Amanda L Grossman

Personal Finance Writer and CEO at Frugal Confessions, LLC
Amanda L. Grossman is a writer and Certified Financial Education Instructor, Plutus Foundation Grant Recipient, and founder of Frugal Confessions. Over the last 13 years, her money work has helped people with how to save money and how to manage money. She's been featured in the Wall Street Journal, Kiplinger, Washington Post, U.S. News & World Report, Business Insider, LifeHacker, Real Simple Magazine, Woman's World, Woman's Day, ABC 13 Houston, Keybank, and more. Read more here or on LinkedIn.

Hailey Huston

Friday 4th of September 2015

Love the advice! Refinancing is always a good way to save some cash along the way to invest in other areas where you can make money!

Amanda L Grossman

Friday 22nd of February 2019

YES. Not only can refinancing make you feel less house poor, but you can free up some cash to then grow your wealth. Pretty cool house poor solution.


Friday 31st of May 2013

Great tips. We also appealed our assessment and saved a ton of money. We never realized that this was an option and I think more people should definitely be aware of this.

Amanda L Grossman

Friday 22nd of February 2019

How can we prevent house poor status? I say...appeal your house assessment! Way to go on saving your family money.


Wednesday 29th of May 2013

We rent a room to my sister. It's easy cash!

Amanda L Grossman

Wednesday 29th of May 2013

Nice Michelle! Crystal from BFS does that as well.


Wednesday 29th of May 2013

Wow, didn't know about the possibility of appealing the assessment. Makes sense, though. Thanks for the great breakdown.

Amanda L Grossman

Wednesday 29th of May 2013

You are welcome! It definitely took some time, but they have not raised it since so it has repaid itself over and over again.