Are you ‘house rich, cash poor’? Prevent this by choosing a budget-friendly home loan

Are you ‘house rich, cash poor’? Prevent this by choosing a budget-friendly home loan

Dubai: Being ‘house poor’ is often interchangeably referred to as being ‘house rich, cash poor’. While this phrase might sound like an oxymoron, it’s actually fairly common among new home buyers. But how can someone be rich and poor at the same time? Well, it all comes down to how much you have tied up in your home, compared with how much you have in your pocket. Being house-rich and cash-poor means you have more equity locked into the value of your home than you have in liquid assets. To understand this better, consider this. Let’s say your homeownership expenses take up over 40 per cent of your income, which means that your ‘debt-to-income ratio’ is higher than 40 per cent. (As a general rule, it’s best to not spend more than 30 per cent of your income on living expenses.) Additionally, if your home equity makes up more than 80 per cent of your total net worth, meaning you don’t have any other major investment, and you have less than six months in cash reserves to cover your total monthly expenses if the need arises, it means you’re ‘house rich’, but ‘cash poor’. “The problem with being ‘house-poor’ is