Making a decision to become house poor? - Mothering Forums

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Old 12-10-2008, 02:28 AM - Thread Starter
 
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We are thinking about doing this. We live in an okay house in an neighborhood that could be better (though it could be worse) some of our schools are okay and some are really a problem. Now that things are costing less we are considering selling our house and buying one in a better area...it will completely change our money situation though. We really don't struggle here and would struggle if we move - that beng said we will probably have to send the kids to private school if we stay here (also creating a struggle at some point...)

Has anybody been in a pretty comfortable housing situation and changed it up for longer term goals? Is this stupid?
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Old 12-10-2008, 02:43 AM
 
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In this economy? Never, ever, ever would I consider such a thing. We might be going thru a period of deflation right now, but inflation is just around the corner with all the money the Fed keeps printing from thin air.

I would sit tight for at the very least a year. Start saving the difference your mortage payments would be to see what the really feels like to be spending that much more on a mortage. If at the end of the year, you still feel the same and the economy is still the same if not better, then you have all that much more money in savings.

Do you have a 6 month emergency fund? I would certainly have that well in place before making any kind of such a move in today's economy.

It's going to get worse before it gets better.


Good luck in thinking this all over.
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Old 12-10-2008, 02:54 AM
 
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I would not want to be house poor. I have a good friend in this situation and she can't even go out to eat every once in a while cause money is so tight. Back when we lived in a shady area and had a tiny apaprtment, I used to be jealous of her nice home and cars... but they don't ever actually get to leave their house! Not saying that is similar to what you are considering but it's what i thought of and as much as I think it's important to live in a area with good schools and low crime, I wouldn't want to put my family in the position to knowingly struggle financially, yk?

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Old 12-10-2008, 03:08 AM
 
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we will probably have to send the kids to private school if we stay here
This is the part that I would think long and hard about. How much difference would it make to send your kids to a private school? What if you were super involved in the school instead, and also did lots of at-home tutoring? I have a good friend who went to a really bad public school in Miami, but because she was motivated and her parents put lots of emphasis on education, she did really, really well. She feels she was able to participate in lots of extracurricular activities she wouldn't have been able to in another school, because there wasn't much competition. She was a big fish in a little pond, IYKWIM. And, if you were saving money on private school, you could be putting that much more into their college funds.

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Old 12-10-2008, 03:13 AM
 
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Well... It's not an all or nothing proposition. Would you consider significatly tightening the belt now to save up a good down payment. That way you would potentially lower your monthly payment at the new house, and you would get to see what living on less would feel like, and you could see if it was worth it.

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Old 12-10-2008, 04:01 AM
 
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I wouldn't want to become house poor in any economy, even a good one.
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Old 12-10-2008, 04:06 AM
 
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We just put an offer in on a new house. It has the space we have been wanting, in the school district we feel we need to be in (to avoid private school) and was a 'deal'. That said, we will be paying dual mortages until this house sells and we have increased our mortage payment by a good amount. While it is not an ideal situation, we did save up a good amout for a downpayment, paid off all of our debt and built up a good 'buffer' in savings to get us through before we made the decision to buy. For us the school was a HUGE factor, espically since we have 4 kids we will be putting through school. This at least gives us the option of public school.

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Old 12-10-2008, 12:07 PM
 
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It really depends on the numbers. If it's going to be hard for you to pay your bills then of course it's a bad idea. If it means leaner vacations or whatever then that's different. I'd have to see the numbers.

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Old 12-10-2008, 12:13 PM
 
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It may be a good market to buy, but it's a terrible one to sell. Put the current house on the market, and reconsider it if and when you get a good offer. There's no rule that offers need to be accepted, and chances are you won't get a decent one for a long time, which gives you plenty of time to think about it. In the meantime, save like crazy to make it more doable.
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Old 12-10-2008, 12:28 PM
 
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Being house poor is horrible. Your kids aren't going to think "well we're hungry and we don't have much food, but it's ok I have my own room!" You also aren't going to be thinking "well at least we have this lovely home, we have to sit in the dark and it's cold, but we got our house!"

That might sound a little dramatic, but when things get tough that is exactly the type of senario you may be looking at.

It's really draining and depressing. I wouldn't even think about this idea.
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Old 12-10-2008, 12:49 PM
 
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Depending where you are, it's not a very good time to sell, but there are deals if you are buying.

I would personally move if family safety issues were at stake, or the schools were so terrible that the children couldn't attend. Do you know the specific school your kids would attend? If so, have you visited, been in the classroom, met the teachers, etc.? I ask because sometimes we think a situation is terrible, when the day to day reality is actually OK. Just wondering about the assumption of needing a private school.

I guess we are technically "house poor" as we are in a high COL area. We don't really go out to eat and live a fairly simple life. We chose our location for family safety and good schools. Everything else is gravy after that. I don't really care if I have extra spending $$ if I don't feel safe and my children aren't receiving a good education. Our housing is our priority at this point, and any extra we sock away.
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Old 12-10-2008, 12:52 PM
 
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Real estate in DC still has a long way to fall before it is in line with the median income. If you really want to do this, sell you current house, rent for a year or two, bank the savings, and then venture back out into owning later.

Don't believe the hype. This isn't a "great buying opportunity." Yet.

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Old 12-10-2008, 12:58 PM
 
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It may be a good market to buy, but it's a terrible one to sell. Put the current house on the market, and reconsider it if and when you get a good offer. There's no rule that offers need to be accepted, and chances are you won't get a decent one for a long time, which gives you plenty of time to think about it. In the meantime, save like crazy to make it more doable.
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Old 12-10-2008, 01:12 PM
 
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We are house broke. We only make about $20K a year and our mortgage is over half of that. We do live in a nice neighborhood, but it is an association of condos with big yards. I feel safe at night and trust all my neighbors. For us, we are just on the poorer side despite our mortgage. At first it was very hard, and at times it still is, but I also think it has to do with your outlook and attitude. Knowing that I can send the kids in the backyard to play without worrying is freedom. You will have to decide if you would rather have stuff and fun events while living in current location, or a safe home. I of course would prefer both, but if I had to choose, I am glad to live in a safe place. I also would think hard about the private schools. I do think may be a little better than public schools in some ways, but I went to a private school one year and the kids were mean. Something I commonly hear is that kids in private school are doing all the same things as kids in public schools, they just aren't getting caught-their parents trust them because they can put on a good show. Another option however, is to bloom where you are planted. I have a good friend who lives in our ghetto part of town. The bus stop is right in front of her house. She planted all kinds of flowers around it despite warnings from neighbors that they would be demolished, but she had hope that if she made things look nice that others would respect it- they did. Try to inspire your neighbors and you might have a bigger effect than you could imagine.
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Old 12-10-2008, 01:31 PM
 
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I would actually have to see numbers to know whether or not this is a good idea for your situation, but we are house poor. We moved last year and were able to make a huge down payment from the proceeds of our last house. But our mortgage payment increase by a lot. For the first year we were here, we were really struggling financially but I wouldn't change a thing. The best part about our new town is that we don't have to put on a show like we have more money than we do. There's no pressure to keep up with the Joneses, because even though the Joneses have more money than we do, they are doing a lot of the same crunchy things we are doing. If moving to a better town meant I'd stand out a the poorest family in town, then I wouldn't do it.

Either way you decide, this is a huge decision to ponder. Run the numbers and really think about whether or not you can live without the things you'll have to forgo. But for us, we'll never be able to buy toys or go on expensive vacations or have really nice cars or go out to eat a lot, but it's a very good trade off and we're happy to make the sacrifice.
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Old 12-10-2008, 01:56 PM
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How house poor are you talking? What percentage of your take home pay would it be? Other debts? We go round and round on this and for 2 years always say no to moving in the end. We have so far decided to get out of cc debt (almost done!), save 3-6 months expenses in an emergency fund and then revisit the house issue.

Btw, our house payment would be marginally more each month, its the moving expenses and hooking up utilities and risk of something going wrong that would kill us right now.
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Old 12-10-2008, 02:04 PM
 
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Don't do it. We are completely house poor, and I hate it. I regret our decision every single day. We had enough money when we bought the house, although I suppose we were still considered house poor. Since we bought it, my husband's income was reduced DRASTICALLY and he had to take on a second full-time job. We not only don't have enough money now for extras, but not even necessities. Forget eating out, we need new tires for our car something fierce and we can't get them unless we get enough money gifts for Christmas from our parents.

If I could go back in time, I would kick my own butt before I got a chance to sign the papers. Before we bought it, we lived in a town I absolutely HATED. It was small (200 population) with NOTHING in the town but a bank and a post office. I never felt safe there because there was lots of drugs and no police presence. Regardless, I'd rather live there forever than have this horrible feeling of not being able to pay our bills.

In no way do I think prices are done dropping. Wait. Save up as much money as you can. Think seriously about what will happen if your income goes down after you are already house poor. How will you make ends meet?

Can you sell your current house and just rent in a better area with better schools? At least if rent gets to be too much, you can just leave.
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Old 12-10-2008, 03:04 PM
 
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Becoming house poor is never a good move, but in this economy it would be pretty much the worst move you could make.
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Old 12-10-2008, 04:32 PM
 
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I don't know anyone who was house poor who has been able to stay in their house for more than 3 years.

I think it's a bad idea.
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Old 12-10-2008, 04:50 PM
 
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I would sit tight for at the very least a year. Start saving the difference your mortage payments would be to see what the really feels like to be spending that much more on a mortage. If at the end of the year, you still feel the same and the economy is still the same if not better, then you have all that much more money in savings.
I think this is great advice. Don't forget to add in how much more you will be paying in taxes, insurance, and any HOA fees. It's better to find out now if it is too much for you rather than 6 months after you buy it. If you do decide to buy, you can use the money as part of a down payment. If not, you have a nice chunk of money set aside for savings or tuition.

We were looking at buying this past summer but decided against it mainly because we would have been house poor and that is way past my financial comfort zone.

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Old 12-10-2008, 04:55 PM - Thread Starter
 
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Thanks guys lots of good food for thought. Lots of posts, I will try to answer the questions folks asked...

Our plan would be to sell our house and put down at least 20%. We wouldn't consider buying a new house until we sold this one.

Right now our mortgage is about 25% of dh's income - a new mortgage would be about 65% of his income. We currently put the max into retirement, money into the kids college savings plan, and have a gym membership, and take decent (though not over the top) vacations. We could get rid of all of these things for a few years as well as trim back the spending and squeak by...

We already own our cars outright and have no credit card or other debt. We also have about a 12 month emergency fund for this house which would be about 6 months for the houses we are looking at.

The schools aren't going to be okay as the kids get older. The elementary school is good enough - two of my kids go there now and I am there volunteering all the time and it is going fine - the middle school is also okay - the high school is not. I will not send my kids there if I don't have to - I am pretty open about schools and peoples expectations for how schools have to perform and all that and I have heard from many teachers, police officers, etc. that it is not a safe or decent school environment. I have visited it and had the same bad vibe (watching kids buy drugs at a high school baseball game pretty much convinced me!) We are feeling sort of pressed to get on with a move since my oldest is in 3rd grade and is getting really attached to his friends - I would rather move him sooner that later, but we really are set with okay schools for 5 more years.

I am planning on returning to work at least pt in the next couple of years and this would all be much less tight if I do so, but only want to work a couple of days a week until the kids are older and would prefer not to go back for at least one more school year.

Seekingjoy - I guess my fear is that this is the best chance to buy - houses are sort of within our price range that I never would have thought we could make an option, but maybe we have a whole year or more to wait and watch things drop in price?

I guess the thing is that I really should try to bloom where I am planted, but I have been here for 8 years and I just find my neighbors so depressing . They are always poor mouthing and seem so defeated...I really worry about my kids picking up on the negative defensive vibe that I hear all too often. I realize that it is probably insane to consider moving - dh and I have just been so unhappy here for so many years that any possible out is tempting - but in a weird way a low mortgage is like a well-paying job you hate - golden handcuffs - right?
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Old 12-10-2008, 05:03 PM
 
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My parents bought the biggest house they could afford in a really really nice neighborhood.

We grew up house poor.

It was not fun.

Your children will go to school with other children who have more money than they do. The other children will ALWAYS have nicer clothes, nicers cars, nicer vacations, nicer everything than your children -- because their parents earn more money and can afford to live in their homes.

My parents were relatively well-off, but I grew up feeling deprived because we were surrounded by people who were in a different financial bracket than we were.

I would never do that to my children.

If you must live in the wealthier area, rent there for a while to see if it would work for your family.

 

 

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Old 12-10-2008, 05:14 PM
 
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Okay, I'm going to be the voice of dissent here. Not really dissent, because I would never advise anyone to take on a large mortgage, especially in this economy, but we did it and don't regret it.

Before my DS was born we bought a lovely house in a part of town where you could get a lot more house for the money than where we'd been living. It was close to my stepkids' mom, which was why we chose that particular area.

As I said, the house was lovely, and our street was quiet (also a bonus, compared to our last house). And I was MISERABLE. I regretted the move immediately, and it never got better over the three years we were there. It was very conservative politically and the people were really low-class. People would literally hang out their cars to mock us for wearing bike helmets. And when one of my stepson's mom's heard we named our son Henry, she burst out laughing. I could.not.live.there. Parents were smoking at the park I would take my baby too, and swearing at their kids. I hated every minute of living there.

So...we moved to an end of town where we're surrounded by public defenders and college professors and a mix of liberals and conservatives, where people are kind and friendly and I actually enjoy taking my son to the park. I LOVE it here. Absolutely, positively LOVE it. Our mortgage more than doubled and is now about 50% of my DH's take-home, and we don't have any extras, but I don't care. We were spending more money when we lived at our old house because I was so miserable.

So...there you have it. It wasn't the smartest move, financially, but it's made a world of difference for my mental health.

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Old 12-10-2008, 05:21 PM
 
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I don't know anyone who was house poor who has been able to stay in their house for more than 3 years.

I think it's a bad idea.
Bingo.

It seems ok to be house poor when you start out, but when you need a new roof, or a part of the fence needs replacing, or the hot water tank goes, or someone breaks a window, or .. or ... or ... it quickly becomes unmanageable.

We are house poor in a town of house poor young families. We live near a world famous ski resort, where all the workers (DP is a chef, I'm a paramedic) who choose to buy real estate do so at the expense of becoming house poor.

About 70% of our take home income goes to our mortgage. We do have a suite and a tenant that pays some towards that.

I would never advise anyone else to become house poor, but we would do it again (and this is the second time for us already ... the first one was also a high COL seaside community). We consider our house to be a very big piggy bank. When the time comes that we cannot afford it, we will move elsewhere at the expense of our careers, so no matter what we do, there'll be a sacrifice.

We are about as frugal as it gets, so that helps.

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Old 12-10-2008, 05:26 PM
 
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I completely agree with the poster that mentioned that people who are house poor usually don't live in that house long. You might want to read my "mortgage underwater" post. Not that you would have the unexpected medical bills or make the same bad choices we made, but requiring 65% of your income just to pay your mortgage is not fun. Trust me on that one.
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Old 12-10-2008, 05:29 PM
 
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Anything with the word 'poor' in it should cause you to pause and rethink.

We are living (temporarily) in a tiny apt (for our family of 5) and would dearly love to move to a house NOW. But to do so would completely gut our ability to save anything. So we are waiting it out. Summer will be here eventually and we will be at the end of our lease instead of breaking it and owing money.

Oh, and we are in the metro DC area too.

And we own a home back in Indiana that we are renting to friends. We had hoped to sell it, but the market crashed before that could happen.

So we have a mortgage and a lease and pretty decent credit. There's no sense living in worry when we have the luxury of time, which is precious and will eventually translate to more flexibility with our choices.

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Old 12-10-2008, 05:29 PM
 
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wildmonkeys... I just read your more in-depth post and if I were you, I'd totally do it. It's a risky gamble, but so long as you stay as organized and prepared as you are right now, I think you'll be fine. You're in better shape than most people, and you seem to have a smart head on your shoulders.

Come to think of it, we've been house poor with four out of the five homes we've lived in. And when we were in the one that we could easily afford, we didn't save any more money or live any less frugally ... the only difference is that we were paying less into our mortgage.

Taking big scary risks in the real estate market has been the only way we've been able to build the collateral we have now. We do live in Canada, so we don't have the sub prime situation you folks have, but we are in a recession and our house prices are falling ... so we stand to lose some or all of our investment, unless we stay put and ride it out. Which is our plan if the economy demands it. If we can sell at a decent price, we'll move.

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Old 12-10-2008, 05:40 PM
 
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Right now our mortgage is about 25% of dh's income - a new mortgage would be about 65% of his income. We currently put the max into retirement, money into the kids college savings plan, and have a gym membership, and take decent (though not over the top) vacations. We could get rid of all of these things for a few years as well as trim back the spending and squeak by...
The monthly payment after your down payment would be 65% of his monthly income? And that's the only income you have coming in? Are there companies that will approve a mortgage with a debt to income ratio that high?

Kirsten, mama to Monkey since May 2007 and Bean born 11/7/09
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Old 12-10-2008, 06:02 PM
 
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After reading the OP's new post, I personally would stay there until your oldest is getting ready to enter Jr. High. Entering a new Jr. High is less tramatic that say a new High School as so many kids get shuffled around from grade school to Jr high, not to mention that other families will be moving in and out of your district as a younger child as well.

Save money like crazy for the next few years so that the mortage industry has time to recover and you have time to save more than the 20% down. Get that down payment closer to 30-40%.

I still would be curious to know what mortage company would approve you for such a high percentage of mortage payment vs. income ratio.

Good luck
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Old 12-10-2008, 07:19 PM
 
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I am all for living in a nice safe area but if it means that after putting down a 20% deposite you will still be paying 65% of your total income then thats a really bad idea. Can you find somewhere not quite so large or in a less expensive community?
Taxes and insurance, as well as all those things that happen can easily pull you under. This year alone we had to pay dental fees (2 rootcanals and 4 crowns), vet bills, new ac in my paid off car, new tires on my paid off car (now feeling paid off car needs to be replaced before something else major happens), roof repairs and fence repairs. If I think about it I am possitive I could add to that list! I count myself as house poor as we can't afford to decorate, holidays were camping at national parks but we can still live comfortable (though frugally) and cover those extra expenses without being really worried about buying food.
I will say that I agree with New Mama that being in a house and area I love has made a huge possitive difference in our quality of life. We don't feel the need to go out anywhere near as much as when we lived in a tiny house in an overpopulated scary area, we like being home. I'm comfrtable with my children walking to friends homes, I don't get scarred when my husband is away at night. We are all so much more relaxed. The schools are so much better and the parents are so much more involved. If there is an issue with a child the parents (so far) have been approachable. It's wonderful to not have to call the police on your neighbours!!!

Another of those unexpected expenses just happened to us. Dh wrote of his car which still has $4000 on it. I'm soo angry right now and know I need to keep my mouth shut.
hillymum is offline  
 
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