TOD’s Budgeting Tips for Buying a House - and Staying on BUDGET
- Establish a Firm Price Limit and a List of “Must Haves”
When you’re pre-approved for a mortgage, your bank determines how much they think you can afford to spend on a house. But don’t assume the number they provide is the amount you should spend. Just because the bank thinks you can afford to spend $300,000, that number likely does not take into account your overarching personal budget or financial obligations.
Go online and use a mortgage calculator – after you enter a sale price, a loan term, and interest rate, the calculator estimates your monthly payment, including homeowners insurance, property taxes, and private mortgage insurance. This can provide you with a good estimate of how much you can afford to pay based on sales price, but don’t stop there. Research whether there are other expenses you’ll need to work into your budget after buying a home.
- Communicate with Your Real Estate Agent
TOD’s had only positive experiences with his real estate agents, but not everyone is as lucky. When working with a Realtor, it’s important that you communicate your budget clearly, emphasizing the need to stay within that budget. Good agents respect your finances and only show you homes you can afford.
- Don’t Compare Yourself to Others
It’s very easy to fall into the cycle of “compare and despair.” If you’re working with a budget of $250,000 and your best friend just bought a house for $300,000, you might find yourself comparing your home options and amenities to his or hers.
This is a nasty cycle to fall into, especially when it comes to buying a home. A house isn’t a pair of shoes or an expensive handbag – if you overspend when buying a house, it isn’t easy to recover from the mistake.
- Avoid Bidding Wars
If you get caught in a bidding frenzy, you could end up spending more than you want. Decide how much you’re willing to pay for a particular house in advance, and resist the urge to exceed that limit. In other words, be willing to walk away.
- Bid on Houses That Aren’t Selling
Some buyers shy away from homes that have been on the market for a long time, assuming that there must be some hidden defect. But sometimes, a home’s inability to sell is much more simple. For instance, maybe it just has bad curb appeal, or there’s too much inventory in a particular market.
Therefore, it is important that you do not automatically rule out a house just because it has been sitting for a long time. (Especially if it is in the location you want!) If anything, seek out these houses. The seller is probably motivated and willing to drop the asking price to move the property. This is especially good news if you fall in love with a house that’s slightly higher than your budget.