Andy Hill discovered he was house poor soon after he bought his first home in 2004.

When Hill put 10% down on the 1,200-square-foot house in Royal Oak, Michigan, a suburb outside of Detroit, he was surprised to find out he had to pay private mortgage insurance, which initially was $158 a month.

Heating the poorly insulated home was also more expensive than Hill thought it would be. To make ends meet, the 22-year-old had to take out a home equity line of credit.

“I quickly found that I was spending at least half of my small $30,000 income at the time on being a homeowner,” he says. “It turned into the home owning me, as opposed to me owning the home.”

While buying a home can be a sound investment, it can also become a financial burden. Here’s how to think about your housing budget so that doesn’t happen to you.

What does it mean to be house poor?

Someone who is house poor spends so much of their income on homeownership — such as monthly mortgage payments, property taxes, insurance and maintenance — that there’s very little left in the budget for other important expenses.

Being house poor can limit your ability to build up retirement or other savings, pay off debt, travel or enjoy life.

“I did not have the money for going out with my friends anymore, going to restaurants, or enjoying time as a young 20-something-year-old,” Hill says. “I was selling my CDs and DVDs on eBay, trying to make the heating bill payment.”

In fact, 28% of recent home buyers say making their monthly mortgage payments will be among their biggest money stressors for the next two years, according to the NerdWallet 2021 Home Buyer Report.

Budget before you buy

Before shopping for a home, it’s important to figure out how much house you can comfortably afford, which may be a different number from the maximum mortgage you can get approved for.

“Home affordability calculators are definitely a good starting point for helping to determine your housing budget,” says Jake Northrup, a certified financial planner and founder of Experience Your Wealth, in Bristol, Rhode Island. “However, they also require that you have a strong understanding of your cash flow today — what income is coming in, what expenses are going out and what amount you are saving.”

One rule of thumb is that you shouldn’t spend more than 28% of your gross monthly income on housing-related costs and 36% on total debts, including your mortgage, credit cards and other loans.

While the 28/36 rule is a good guideline, says Mark Avallone, a certified financial planner at Potomac Wealth Advisors in Maryland, everyone’s situation is different, and the rule doesn’t take into account the need to leave room in your budget for things like furniture, as well as maintenance and repairs.

Plan for upkeep and upgrades

The cost of unexpected home repairs and ongoing maintenance can take first-time home buyers, in particular, by surprise. Even a house that was in very good condition on closing day will inevitably need some big-ticket fixes over the years.

Hill realized after moving into his new home that the roof had to be replaced and the HVAC system needed some work.

NerdWallet’s 2021 Home Buyer Report found that 41% of people who have purchased a home in the past 12 months say their biggest money worries in the coming two years will be affording home repairs and maintenance.

Saving 1% of the property’s value is a good starting point for maintenance expenses per year, says Ibijoke Akinbowale, director of the Housing Counseling Network at the National Community Reinvestment Coalition.

But, she notes, you may need to scale up to 2% of the property’s value based on the age and condition of your home, repairs you have already made, and the life expectancy of housing components like the roof or furnace.