How to avoid being House Poor & Strategies for Balance

Understanding Overextended Homeownership

What does it mean to be “House Poor”?

Securing a mortgage pre-approval is an exciting step towards owning your dream home in a neighbourhood of your choice. However, when your desired property pushes the boundaries of affordability, it can lead to a situation known as being “house-poor.” In this post, we’ll delve into what it means to be overextended in homeownership, how to prevent it, and strategies to navigate the situation if you’re already facing it.

The Financial Burden of Homeownership

As you embark on your home-buying journey, it’s crucial to recognize that the expenses extend beyond the initial purchase price and mortgage payments. Overlooking these additional costs can contribute to financial strain down the road.

Expenses associated with Home Buying

Utility Expenses

Beyond mortgage payments, homeowners are responsible for utilities such as water, electricity, and gas, along with potential extras like internet and garbage services. Failing to budget for these can result in service disruptions or mounting bills.

Property Taxes

Property tax payments vary and may or may not be included in your mortgage. It’s essential to research your local property tax rates to anticipate this recurring expense accurately.


Homeownership entails ongoing maintenance and repairs, particularly for older properties. Building an emergency fund to cover unexpected repairs is prudent financial planning.

Mortgage Interest

Interest rates fluctuate, impacting mortgage payments over time. Whether you have a fixed or adjustable-rate mortgage, understanding the potential for increased costs is crucial for long-term financial stability.

You can find more information in our Comprehensive Home Buying Expenses List.

What is 32% Rule in Homeownership?

Being overextended happens when a significant chunk of your income is swallowed up by mortgage and housing expenses, leaving little breathing room for other necessities. According to the Canada Mortgage and Housing Corporation (CMHC), it’s advisable not to allocate more than 32% of your pre-tax income to housing costs. To figure out if you’re within this recommended range, simply multiply your annual salary by 0.32.

If your housing expenses fall at or below this calculated amount, you’re likely in good financial standing. However, if you find that you’re spending substantially more on housing, it could be a sign that you’re grappling with house poverty.

What is debt-to-income (DTI) ratio?

To determine whether you’re house-poor, one effective method is calculating your debt-to-income (DTI) ratio. This ratio compares your earnings to your financial obligations. There are two types of DTI ratios to consider:

Front-End DTI: This ratio evaluates the percentage of your major housing costs relative to your monthly gross income. To calculate it, add up all your home expenses, divide by your monthly income before taxes, and then multiply the result by 100.

Total Debt Ratio: This ratio takes into account all your debts, not just housing-related expenses. It compares every minimum monthly payment you have to make against your monthly income.

By calculating both these ratios, you can gain a clearer understanding of your financial situation and whether you’re facing house poverty.

Strategies to avoid being “House Poor”

Preventing overextended homeownership requires careful financial planning and decision-making. Here are some strategies to consider:


Acquiring a residential property is undeniably one of the most significant purchasing decisions you’ll make in your lifetime. It’s crucial not to take it lightly. If owning a home is your long-term goal, it’s essential to plan well ahead of the move-in date. Financial experts often advise following the “28% rule”: allocate 28% of your monthly income and deposit it into a high-interest savings account. This disciplined approach helps build a substantial down payment over time, ensuring you’re financially prepared for homeownership when the time comes.

Debt Reduction

Indeed, implementing the 28% rule is easier said than done. However, it’s essential to recognize that your mortgage will likely be your most substantial debt for the next 15, 20, or even 25 years. To safeguard against house poverty, it’s crucial to reduce or eliminate other debts in your financial portfolio. This can be achieved through various methods, such as trimming non-essential expenses, consolidating debts, and seeking additional sources of income. By actively managing and reducing your debt burden, you can better position yourself to maintain your mortgage payments without sacrificing financial stability or becoming house-poor.

Larger Down Payments

Making a substantial down payment reduces mortgage obligations and long-term interest costs.

Realistic Home Purchases

Consider purchasing a home below your pre-approval limit to ensure affordability and mitigate financial strain. This also helps preventing any additional expense that arises out of a lower property appraisal.

Emergency Fund

Maintain an emergency fund to cover unexpected expenses and income fluctuations, safeguarding against financial hardship.

Fixed-Rate Mortgages

Although variable-rate mortgages may appear attractive due to their lower initial interest rates, they often come with a drawback: fluctuating monthly payments. This variability can pose challenges when it comes to budgeting from month to month. While the lower rates might offer short-term savings, the uncertainty of future payments can make it difficult to plan your finances effectively. As a result, opting for a fixed-rate mortgage provides more stability and predictability, allowing you to budget with greater confidence over the long term.

Lifestyle Inflation

When individuals receive salary increases, it’s common for them to upgrade their lifestyle in tandem. While this might seem appealing, many end up falling into a cycle of increased expenses. However, a smarter approach is to allocate the extra income towards savings or paying off your mortgage. This strategy serves as a proactive measure to prevent house poverty, as it helps prepare your household for potential fluctuations in income, whether positive or negative. By prioritizing savings or mortgage payments over lifestyle upgrades, you can fortify your financial stability and avoid the pitfalls of house poverty.

In conclusion, we’d like to say that overextended homeownership poses significant financial challenges, but with proactive planning and prudent decision-making, it can be managed effectively. By understanding the factors contributing to overextension and implementing strategic measures, individuals can achieve financial balance and secure their homeownership aspirations without undue financial strain.

Already feeling the brunt of Overextended Homeownership?

If you find yourself in the challenging situation of being house-poor, there are steps you could consider taking to ease the burden and potentially improve your financial situation:

Get a Second Job: While not always feasible, taking on a second job, even if it’s part-time or gig-based, can provide extra income to help cover your expenses and maintain your current lifestyle.

Find a Roommate: Renting out a room in your home can boost your income and help offset some of your housing costs. Consider offering a room on platforms like Airbnb if you prefer short-term rentals. If you have a legal livable basement, you could consider renting it out.

In fact, these days many buyers look for homes with basement apartments at the start of the home buying journey itself.

Trim Discretionary Spending: Evaluate your spending habits and look for areas where you can cut back on non-essential expenses. For example, dining out less frequently, opting for streaming services instead of costly entertainment outings, and reducing travel expenses can all free up funds to put towards your mortgage.

Use Savings Sparingly: While dipping into your savings should be a last resort, it can provide temporary relief to cover essential expenses like mortgage payments. However, this should only be considered a short-term solution, and efforts should be made to replenish your savings as soon as possible.

Refinance or Downsize: If your financial situation doesn’t improve despite other efforts, consider refinancing your mortgage or downsizing to a more affordable home. This may help reduce your monthly housing expenses and alleviate some of the financial strain.

Remember, being house-poor is a stressful situation, but it’s not permanent. By taking proactive steps to increase your income, reduce expenses, and explore other adjustments, you can work towards improving your financial well-being and ultimately achieve greater stability and peace of mind.

Another trend to avoid avoid becoming house poor and to get qualified for a home loan in the first place, many first time home buyers are opting for co-ownership or alternate home buying options.

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