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You are here: Home / Podcast Episodes / House Poor Are You? Is it better to buy or rent? – sos031

House Poor Are You? Is it better to buy or rent? – sos031

By Steve Stewart on September 7, 2011

House Poor Are You? Is it better to buy or rent? – sos031

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House Poor Are You?

There are some stark differences that I just wanted point out between buying and renting because knowing these differences might just help that first home buyer or someone who is strapped to their house. You see, When someone has too much of their take-home pay going towards household expenses, we call that being “House Poor”, and it can be devastating to your financial future. But Owning a home has so many benefits, I don’t want to make owning a home sound like a bad thing even though it’s a pain in the butt sometimes.

You are a renter

You are considered a “Renter” if you are paying for a place that you do not have a legal position of ownership. This would include signing a lease for an apartment or even a house (which has become more common in the past few years), paying a friend while you crash on his couch for an extended basis. You could be living in a dorm room that your parents are paying for or maybe sharing the expenses with one or two roommates.

A typical rental agreement is to pay someone else for the right to stay in their property for a pre-determined amount of time. A security deposit is usually required, often the first month’s rent has to be paid in advance, and you need to keep the place neat and clean.

Failure to make the monthly rental payment can result in eviction.

Typical housing expenses for a Renter

  • *Monthly rent or lease payment
  • Water
  • Trash pickup
  • Electricity
  • Natural Gas
  • Cable
  • Phone
  • Internet

*In many cases property owners include one or more of these utility expenses in the rental payment.

You are a Home Owner

In our culture, you can be considered a “Home Owner” even if you have a mortgage. In almost any conversation you have with a friend, co-worker, even on job applications or legal documents, you can be classified as a Home Owner even though the bank holds the title and you repay them for buying the home.

A typical mortgage agreement states that the lien-holder, the mortgage company, holds the tile for the property and you must make monthly payments until it is paid off, then you own the home and no longer have to make those monthly payments.

You lose that right if you stop paying the payment and the bank forecloses on the property.

Typical housing expenses for a Home Owner:

  • Monthly mortgage payment: A portion or this payment goes towards the Principle (loan balance), Mortgage Interest, and Escrow (savings account for property taxes and insurance)
  • PMI: If your original loan amount when purchasing a home is greater than 80% of the value of the house, that is to say if you haven’t put down 20% as a downpayment on a house, then you will likely be charged PMI (Private Mortgage Insurance) which, on average, is about $70-$80 per month for every $100,000 borrowed.
  • All utilities (water, trash pickup, natural gas, electricity, cable, internet, phone)
  • Repairs: Water heaters, air conditioners, dripping faucets, leaky roof, holes in walls, aluminum siding, broken windows, etc…
  • Maintenance: Lawnmowers, weed-wakers, weed killer, lawn fertilizer, snow shovels, furnace filters,  the plastic window insulation stuff for winter, paint for the the nursery, paint for the same room when they are 5, and more paint when they become Tweens before they put pin-holes in all the walls when hanging posters and pictures. And finally: Anything else you usually find on a Honey-Do List.
  • The unmeasurable costs: The time spent Mowing the lawn, weeding the flower garden, raking the leaves, shoveling the snow, missing work while waiting for the repair man to arrive, mowing the lawn (Yes, I said it twice because it has to be done every weekend in the spring, summer, & fall!)

The difference between Renting and Buying

The time spent on the maintenance and unexpected repairs when owning a home is almost immeasurable. Imagine the amount of free time to read, play sports, work on a small business, further your education, volunteering at a rescue ranch, or simply spending more time with your wife and kids instead of mowing the lawn or spending all day Saturday catching up on the Honey-Do list.  If you were to put a price on the expenses of owning a home you will quickly find it is incredibly cheaper to rent than to own.

[pullquote]There are huge benefits of owning a home, but almost none of them are financial.[/pullquote]

The only financial benefits of a owning a home over renting come down to two things: Tax deductions and home equity. That might not be enough to qualify getting into a mortgage as a “smart financial decision”. The biggest benefits are comfort, stability, security, and personalization (remodel a room into a den or home theater and paint it any combination of colors you would like). Those are immeasurable benefits of being a home owner.

How do you know if buying is better than renting?

Weigh out the true costs of owning a home versus renting. If you can get a great deal on a place with a small mortgage then there are huge benefits to being a home owner. But you have to consider all the costs to see House Poor you will be.

I hope you have weighed out the differences and are not House Poor. And I certainly hope you are doing so well with your money that you can afford to pay someone else to mow your lawn.


Also on this episode:

Holla From The Impala: You Have A Debt Free Date!

About Steve Stewart

Hello. My name is Steve Stewart and I HATE YOUR DEBT MORE THAN YOU. I believe everyone should be rich so they can help others in times of need. Life is too short to be this broke! Let's work together on designing a plan for your house of financial freedom. Don't be afraid to reach out to me - I'm here to help answer your call for help (S.O.S.) with a MoneyPlan.

Reader Interactions

Comments

  1. Jackie Walters says

    September 29, 2011 at 10:41 am

    Steve,

    You know how you should listen to God when he continually speaks to you about certain issues and you try to ignore him – well this time it was your voice at the end of this podcast. It was like you were speaking directly to me! Again!

    I will seriously pray about becoming a certified Dave Ramsey financial coach. I will also be checking into holding a FPU class at our local library this fall.

    Keep nudging me Steve!

    Thanks, Jackie.

  2. Prudence Debtfree says

    April 25, 2014 at 5:50 am

    Reading your article made me realize that the burden of home ownership is at the root of some of my foolish spending habits. The time-sink and money-sink of home ownership can be so daunting that I want to escape – to a movie theater or a restaurant or a coffee shop . . . Just to get away from home – where I constantly see walls that need paint, a lawn that needs raking, etc. Thanks for the insight.

    • Steve Stewart says

      April 26, 2014 at 1:00 am

      Prudence, I have a love/hate relationship with my back yard. Not only is there constant lawn maintenance but sections of the 6′ high fence need replacing. I’m with you: A movie does sound much better than yardwork.

      Thanks for commenting.

Trackbacks

  1. Who is richer? The one who earns less with no debt or the one who earns a good income but has debt? « Field of Debt.com says:
    September 9, 2011 at 5:26 am

    […] Steve’s podcast can be found at:  http://www.moneyplansos.com/sos031-house-poor-are-you/ […]

  2. Should I refi? Rates are so incredibly low that it might make sense, even when we only have 50+ months left on our current mortgage says:
    October 28, 2011 at 1:22 am

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  3. Bad Market or Housing Trifecta? 3 reasons this is a GREAT time to buy! says:
    February 21, 2012 at 8:53 am

    […] Run some numbers to see how much you can afford. Dinkytown.com has some awesome mortgage calculators. Just remember to add insurance and taxes to the normal mortgage figure (principal an interest). You do NOT want to become house poor. […]

  4. Renting is not throwing money away - MoneyPlan SOS says:
    September 20, 2013 at 5:46 pm

    […] Want to go deeper? Listen to “House Poor Are You” where I dive deeper into this topic: http://moneyplansos.com/sos031-house-poor-are-you/ […]

  5. Is renting throwing money away? - MoneyPlan SOS says:
    September 20, 2013 at 5:47 pm

    […] Want to go deeper? Listen to “House Poor Are You” where I dive deeper into this topic: http://moneyplansos.com/sos031-house-poor-are-you/ […]

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