Buying a home is one of the most significant financial decisions most people will make in their lifetime. Yet, many buyers find themselves becoming “house poor” after achieving this “American Dream.”
Nearly three in 10, or 27.4%, U.S. homeowners with a mortgage are “house rich, cash poor”—or house poor, meaning they spend more than 30% of their income on housing costs. When so much of your income is spent on housing costs, not much room is left for savings or unexpected expenses. More and more people are falling prey to this; the number of cost-burdened homeowners grew by 3 million to 19.7 million between 2019 and 2022.
Cities like Miami, Los Angeles and New York City have the highest percentages of house-poor homeowners; More than four in 10 homeowners in these cities are “cost-burdened,” according to a 2023 study by the Chamber of Commerce.
When a mortgage payment comes out to about the same as renting, it seems like a no-brainer to put your money toward a home with your name on the deed rather than paying a landlord. But when first-time homebuyers make the switch from renting, they might not realize the full cost of homeownership.
Buyers need to take property taxes, homeowners insurance, utilities, homeowner’s association fees, routine and emergency repairs, maintenance, etc., into account when analyzing their budget. If a prospective buyer is already pushing their budget to the edge, an AC unit or water heater giving out, or a leaky roof could place them in debt.
Home prices have gone up by 47% since early 2020 and insurance premiums increased nearly 21% from 2022 to 2023 alone, according to The State of the Nation’s Housing 2024 report by the Harvard Joint Center for Housing Studies. Single-family property taxes also grew an average of 4.1% in 2023 to $4,062, according to the ATTOM 2023 property tax analysis.
This financial burden is apparent in the shrinking number of first-time homebuyers, whose marketshare fell to a historic low of 24% last year. The median age for a first-time homebuyer hit a record high of 38, according to the National Association of REALTORS®.
Commonly pursued by first-time buyers, low-downpayment loans on the median-priced home result in a total monthly payment of $3,096 after taxes and insurance. A borrower would need an annual income of at least $119,800 to afford that payment.
In 2024, 88% of home purchases were made through a real estate agent or broker, so an agent can make all the difference between a homebuyer becoming house poor or making a decision that makes the most sense for their financial situation.
RISMedia spoke with two agents and one lender to explore their experiences with the “house-poor trap” and learn how to help first-time buyers avoid that path. They emphasize the total cost of homeownership, warn against max-qualification and encourage young people to buy starter homes.
Educate buyers on the true cost of homeownership and help them explore all available options
Though most agents have heard of house poor, Tracy Lawrence first learned about the common trap through firsthand experience.
Prior to working in real estate in the Atlanta, Georgia, metro, Lawrence became house poor while supporting her daughter after a divorce.
“Yes—you have this American Dream and you have a home, but you don’t have the funds to maintain it and do the work that needs to be done on it,” she adds.
Knowing how difficult it can be, Lawrence works with buyers—educating them and exploring different financing options—to ensure they buy a house they love and can reasonably afford.
She makes sure clients know the full costs associated with maintaining a home. Just to name a few, make sure your buyers understand the nitty-gritty details: cleaning the gutters twice a year; repainting; maintaining the siding every five years and roof issues, Lawrence says. This routine maintenance reduces the possibility of having to do major renovations or major upkeep further down the line.
The house-poor phenomenon is so prevalent, says Lawrence, because people are so “tapped out” when they close the deal and get into their homes.
She often jokes with buyers, saying, “It’s not uncommon, as soon as you get a house, that for the first few weeks, you’re eating Top Ramen” because you literally spent everything you have.
More and more buyers are experiencing this after the NAR settlement, Lawrence claims.
“It’s even more prevalent as a possibility because now buyers are having to pay closing costs, a down payment and come up with funds to pay their REALTOR®. It was already hard enough to try to get into a home.”
At least in metro Atlanta, mortgage lenders “aren’t giving you so far above than what you ever thought you could purchase.” If a buyer wants to buy a “nice home” in a nice area with a good school district, she adds, it’s going to be very hard to find something with a limited budget. Lawrence has found that even buyers who want to go under budget end up going over after they see what’s available.
“I don’t care if you have $200,000, $400,000 or $600,000—it’s never enough. I’ve had clients who could qualify for $800,000 but want to stay in fives since that is comfortable for them, but they can’t find anything because the sevens always look better. So they end up going to the seven,” she said. “So the person who has $350,000, undoubtedly, the houses they love are four.”
People just aren’t buying starter homes anymore, says Lawrence. They want “the” house instead of starting small, building equity and building up. There might have been a time when a first home was somebody’s last, but Lawrence tells these younger couples, “I promise you this is not your last home. When you’re 25 – 30, it is not your last home—not in this day and age.”
On average, homeowners typically stay in starter homes for about five years before trading up.
Younger people are also more likely to move due to career or life circumstances, so a starter home may be ideal for clients who anticipate moving in the next decade. According to data collected by Bright MLS Chief Economist Dr. Lisa Sturtevant, 36.7% of homesellers between 30 – 39 are moving for career reasons, and 34.4% are moving for family reasons.
Besides talking buyers through the idea of a starter home, Lawrence also partners with lenders to explore financing options. But, she makes it clear that not all lenders are created equal. She likes to work with lenders who aren’t afraid to get into the weeds and explore different options because everybody is different and every scenario is different, she says.
It’s important to go and “shop” different lenders. With her 27-year-old daughter, who just bought her first home, Lawrence was able to help her qualify for a home simply by exploring different options with lenders. Some lenders are “a bit riskier” and they can dig through and find creative solutions, she says.
“Sometimes, you just have to go to different lenders either to get qualified for more or because you can’t find what you’re looking for. I had one where she was qualified for $220,000—and in Gwinnett County, Georgia, that’s just impossible. So we had to work,” she said. “Then we went to another lender, and they went, ‘Well, if you pay this car off, that’s like $4,000, now we can get you up to $275,000.’ You’d be surprised how much that little bit makes a difference.”
And just because a lender can help a buyer qualify for more, Lawrence still makes a point of working with her clients to ensure they fully explore their options, like perhaps moving to other nearby counties, just to make sure they’re getting the biggest bang for their buck.
For newer agents, who perhaps don’t know about the ways a buyer can become house poor, Lawrence recommends they put less of an emphasis on the compensation and instead focus on caring for the client and how this purchase will affect them in the long run.
“We are going to sell far more houses than they’re going to purchase,” she says. “So where they’re going to be in that house maybe another five to 10 years, we will have sold several, several homes. Think about your client; you’re going to get more commissions. You do not have to hit it out of the park with every single commission, but focus on your client and what’s going to be best for them.”
Since maintaining a home can be expensive, Lawrence sometimes recommends condos or townhomes since an HOA fee will ultimately cost less money than the upkeep of a typical house.
Typically in larger complexes, condos are still private homes, and they’re generally 5% – 7% cheaper, according to Realtor.com®. In an article published last year, Realtor.com Senior Economic Analyst Hannah Jones wrote that they can make a great entry point.
“Condos can help prospective homebuyers who perhaps have a smaller budget, but who are really determined to get a foothold in the market and start to accumulate some equity.”
In some of the pricier U.S. cities, the median price for a condo can be over 40% cheaper than a single-family home, according to Realtor.com.
Still, detached single-family homes are the most common type of home purchased among all generations, making up 79% of all home purchases—and still the type of home most buyers will be focusing on. The silent generation continued to purchase apartments and condos at higher rates than other age groups, according to the National Association of REALTORS®’ 2024 Home Buyers and Sellers Generational Trends Report. Of those aged 25 – 33, 10% purchased an apartment, a condo or a duplex. It decreased to 5% for those aged 34 – 43.
A lender’s perspective: Have buyers ask not to be max-qualified
With hundreds of educational videos on her YouTube channel, Jennifer Beeston—a mortgage originator and the first woman to earn the Scotsman Guide’s title of No. 1 VA loan originator—is a strong advocate for mortgage transparency.
Falling into the house-poor trap isn’t just a problem, Beeston points out—it’s a big problem.
Where people typically get into trouble is when they get approved for more than they can afford. The worst thing a person can do is ask to be max-qualified, Beeston says, since that will put you in a position to become house poor.
“People ask to get max-qualified and sometimes agents will tell people, ‘Tell the lender to qualify you for the maximum and then we can always go down,’” she said. “I don’t think they’re trying to be predatory; I think they just don’t really understand the psychology of it being really hard to go down in price once you start looking at stuff.”
Beeston thinks being house poor is much more nuanced than spending more than 30% of your income on housing since every person budgets their money differently.
“I have seen people where their debt-to-income is 45% and they could totally afford the house. I have seen people when their debt-to-income is 15%, and there’s no way they’ll be able to afford the house,” said Beeston. “The one thing that I’ve noticed that every single American is missing is a budget.”
Everybody likes a definitive percentage, but it depends on your client’s personal spending, she says.
Most people’s first step is online shopping for homes and then meeting with an agent; that’s where people go wrong, Beeston claims.
“Number one: do a budget; look at your spending and figure out how much house payment you can afford. Number two: go to a lender. Number three: go to the REALTOR®. That’s if you want to be safe.”
To help buyers from falling into this trap, Beeston suggests agents educate buyers on the full cost of buying a home.
Make sure the buyer is comfortable with the payment at the purchase price you’re looking at, as well as the closing costs. More and more often, Beeston says, buyers are issued a pre-approval without discussing these things.
“What happens is the buyer goes shopping based on this pre-approval, without ever taking the time to know what the payment is,” she said. “They get into contract and they freak out because that’s when they figure out the payment.”
If an agent wants to save time and make sure their client will have long-term success, they need to make sure the lender has gone through these steps before they start shopping.
Real estate agents assume lenders are already going through this process of educating buyers—but from Beeston’s experience, many aren’t.
Educating buyers on the full cost is a win-win situation. It’ll save agents time and will ensure their client makes the right decision.
“If you’re showing a borrower $700,000 houses because the letter says $700,000 but they don’t even know what the payment is—there’s a good chance that’s going to fall apart as soon as you get into contract,” she said. “So to save a lot of work, you do want to verify with the buyer that the lender has done this.
As a lender, it’s not uncommon for her to hear, “Oh, that’s too much” from a client after going through the payment—including taxes and insurance—and then dialing it back down $50,000 to $100,000. The client needs to be comfortable with the projected payment, she says.
Building equity: The role of a starter home
Recently featured on HGTV’s “House Hunters,” Christina King Rogers—a real estate agent in Indiana and Illinois—has worked with plenty of first-time homebuyers who have wanted to stick to a home under their budget, but these buyers almost always go over budget once they start looking at homes.
Like Beeston, King makes sure the budget conversation is made during a buyer’s consult.
But what usually happens—after fixating on all the bells and whistles during the home touring process—is that the buyers stop thinking about the value in the bones of a home. They forget about equity and instead only think about how the bathroom or the kitchen aren’t updated.
This is the group of people who are becoming house poor; they’re not looking at the long game of it, King says. They look at this first purchase as their forever home instead of approaching getting a starter home as “getting into financial freedom one step at a time.”
“Instead of them saying, ‘Let me buy this property and after a few years I’ll put some equity into it and then maybe after seven to 15 years I sell that home and I’m sitting on equity.’ People are not thinking like that; they’re automatically coming into a buying situation where they want everything on their list and more,” she said. “I feel like they’re setting themselves up for that trap. It’s a trap.”
Agents have the power to steer buyers away from falling into this “house-poor” trap. Here are a few things King recommends to ensure buyers continue down the right path:
Redirect your buyer on their wants and needs
There are differences between wants and needs, and if there is any wiggle room in a buyer’s checklist, you need to make sure they make that clear.
Making sure there aren’t any foundational issues is crucial, said King, because absolute essentials trump having a freshly renovated bathroom, finished basement or an extra bedroom.
Buyers might not be thinking about the age of a roof or the furnace and HVAC unit, but as an agent, you should educate buyers on how important that is. A new roof, furnace or HVAC unit can set your buyer back thousands of dollars. If first-time buyers get educated on the importance of this, they can avoid the house-poor trap, says King.
Once buyers start touring homes, it’s easy to get enamored with all the specs and start nudging their budget a bit. When this happens, it’s fine to redirect buyers and remind them of their wants and needs in a home.
“It’s a lot of redirecting,” King says. “It’s kind of like, ‘Okay, let’s go back to what we talked about when we first sat down for the buyer’s consult. These were your pros, cons, must-haves and compromises.’”
During a buyer’s consult, King has her clients write down their must-have items and some items they are more willing to compromise on.
When buyers are on the verge of buying something over their budget, King refers them back to their list, redirecting them back to their mindset for buying before they toured homes.
Buyers should leave room in their budget for unexpected expenses
Becoming house poor does not always stem from a lack of budgeting. Even a buyer paying an “affordable” amount for their home can still become house poor if they don’t take into account all of the costly things that could go wrong in a home.
A buyer can’t predict if the furnace will go out or if their house will flood. A natural disaster isn’t always budgeted for either.
“When you are buying the biggest investment of your life, you need to have money saved up, and a lot of people don’t,” said King. “A lot of times they’re looking for seller concessions—where sellers pay a portion of their total cost—or they have family members that they’re borrowing money from or receiving a gift from to buy the house. So they don’t anticipate those (unexpected costs) when buying an investment property.”
Co-brand with a lender you can trust
Everyone has their strengths, so collaboration is key when it comes to helping a buyer get to the finish line.
King typically sends her buyers to her referral partner, a lender, to have them walk clients through what their buying power looks like. Since she’s closed many deals with her lender, King knows that this collaboration is key to ensuring her clients learn the fundamentals of buying and be taken care of every step of the way.
Use resources to your advantage
Though clients should use agents as their ultimate resource, it’s beneficial to refer clients to resources they trust so that they can educate themselves.
Because of how often rates fluctuate, King refers her buyers to a mortgage comparison tool on Bankrate.com, since it’s helpful for clients who should have that information readily available to them. She always shares it with first-time buyers so they are aware of everything going on with the market.
Ultimately, says King, agents can make the difference between leading a client into a home that stretches their budget too thin and becoming “house rich, cash poor,” or a home that lets them achieve their dream of homeownership while still maintaining financial stability.
“It is that first-time homebuyer that comes in unrealistic; a lot of it is that they’re not properly educated or they just want what they want,” she said. “Not all, but some agents are just (saying), ‘I’m going to give you what you want because what I want is a paycheck.’ And ultimately, the client loses; the agent doesn’t lose. The client loses because now they’re house poor. They got everything they desired, everything they wanted, and they can’t really afford it.”
Remember the ultimate goal
At the end of the day, the ultimate goal for agents is to provide a service for their clients, King says.
“We’re there to service the client, but we’re also there to educate the client. We’re also there to advocate for the client. But in us doing our jobs as agents, we sometimes have to be the bearer of bad news to the client where we’re redirecting them back to their ultimate goal,” she said. “The ultimate goal for each agent should be that when you get your client to the closing table, you made sure that you did your job in educating, advocating and serving your client.”
