Nearly 60% of all new homeowners in America are house-rich, cash-poor, joining millions of other homeowners with limited liquid assets. As more and more people categorize themselves as house-rich, cash-poor, it’s worth taking a closer look at the unintended consequences of home buying that are affecting millions of people.
What does it mean to be house-rich, cash-poor, how can you avoid becoming house-rich, cash-poor, and what options do you have if you’re already there? Keep reading to find out!
What Does it Mean to be House-Rich, Cash-Poor?
House-rich, cash-poor describes when you have a significant amount of equity in your home, yet you have almost no liquid assets such as cash due to bills, debt, or other expenses that eat up your budget.
How Do People Become House-Rich, Cash-Poor?
There are a lot of reasons that you could become house-rich, cash-poor. Some of the most common include:
- High Property Values: If your neighborhood’s property values are on the rise, your home could be worth much more than you paid for it. However, just because your home’s property value has risen doesn’t mean your income has increased, or that you have the cash to take advantage of the equity in your home.
- High Debt-to-Income Ratio: If you have a high DTI and spend the vast majority of your income on your mortgage and servicing other outstanding debts, you might not have much left over to save.
- Rising Living Expenses: If you unexpectedly need to start taking an expensive new medication, for example, you might lose the ability to keep much cash on hand. This can lead to a situation where you lack assets outside of retirement funds or your home’s equity.
How Does Being House-Rich, Cash-Poor Impact You?
If you’re house-rich, cash-poor, it’s likely that you’ll experience at least one of the following:
- A Lack of Financial Flexibility: When you’re house-rich, cash-poor, your budget is so consumed by expenses (such as loan payments) that it’s easily interrupted. This makes your personal finances unstable and subject to the whims of the economy and other factors you can’t control.
- Difficulty Building Your Savings: When your house is your most valuable asset and a vast amount of your income is devoted to monthly payments, it’s tough to save. This makes you vulnerable to unexpected expenses and makes it difficult to plan for your retirement.
- Damage to Your Credit Score: Continually relying on credit sends negative signals to lenders, which damages your credit score and makes it harder to get important financing. Of course, taking on debt when you’re house-rich, cash-poor isn’t a wise financial decision, but if you must, doing so with a low credit score makes the terms less favorable.
Are You Buying a Home? Here’s How to Avoid Becoming House-Rich, Cash-Poor
Even when economic conditions don’t favor the housing market, buying a house in America can be incredibly competitive. This often pushes homebuyers to make decisions that ultimately leave them house-rich, cash-poor. Here are some ways to prevent this from happening to you:
1. Keep Your Mortgage Payment Low
One of the best ways to maintain some liquidity regardless of your other debts is to keep your mortgage payment low. Do this by saving longer to make a larger down payment on your home. Additionally, getting a fixed-rate mortgage can keep your payments consistent, even if interest rates rise.
2. Budget for Unexpected Expenses
Over 50% of new homeowners have needed to make repairs since purchasing their home. The repairs you’ll need to make as a homeowner can range from a $200 visit from a plumber, to a $2000 repair to your heating system. You never know what homeownership will hit you with, so being prepared is the safest bet.
3. Pay Off Your Debts First
While saving for a house can be a great motivator, it can cause financial trouble if you haven’t dealt with your existing debts. Focus on paying existing debts off before buying a home. Not only does this mean you’ll have more liquid cash when you do purchase a home, but it also means you’ll avoid accruing interest for years on end.
What Can You Do if You’re House-Rich, Cash-Poor
If you’re house-rich, cash-poor, the solution that first comes to mind is to take equity out of your home to relieve your debts. However, for many homeowners, being house-rich, cash-poor has taken a toll on their credit score over time.
This means that traditional lending options like refinancing, a second mortgage, or a HELOC might not be available to you; and if they are, only with painfully-high interest rates. However, there’s a newer solution that doesn’t depend on your credit score, income, or anything other than the amount of equity you have in your home.
SKYDAN’s program allows you to receive money from your home’s equity within 30 days so you can pay off your debts and take a massive step away from being house-rich, cash-poor. Here’s how it works:
- SKYDAN buys your house, but you and your family stay in your home.
- You get cash fast.
- Together, we agree upon an amount to lease the house back, but no rent is due for up to two years!
- After those two years, you can either purchase your home back from us at the original purchase price, or you can sell the property and receive all the additional equity.
Do you have low credit? High debt? To SKYDAN, that doesn’t matter. So long as you have equity in your home, we have the solution for you. Ready to learn more? Contact SKYDAN today to see if the program is a fit!