How to avoid overpaying for a house in today’s market
A house is probably the biggest purchase your family will ever make.
You never want to feel like you paid too much.
But the seller wants to make sure they get as much in the sale as possible.
Fortunately for you, avoiding feelings of overpayment is easy if you stick to a set of rules throughout the home buying process.
In the end, stick to these steps and you’ll feel satisfied about the value you get for the money you spend on your new home.
It seems obvious, but set a budget before viewing any homes
Don’t spend any time looking at homes before you know the maximum amount you’re comfortable spending.
The rules for families used to look something like this:
- Never commit more than 30% of your monthly income to mortgage payments.
- Never buy a house worth more than 3 years’ income.
But in today’s market, the rules are a little different. It’s more reasonable to say:
- Never commit more than 50% of your family income to mortgage payments.
- Never buy a house worth more than 6 times your annual income.
Some home buyers set a budget that ensures if one partner loses their job, mortgage payments are still within a comfortable payment range.
When you know your budget, you can shop within it and avoid falling in love with a home outside your comfortable mortgage payment zone.
See some houses, reevaluate your budget
Realities of the current real estate market mean sometimes you have to cautiously reevaluate the budget you set and the money you are willing to and capable of allocating to the mortgage.
If you decide you have to increase your budget, clearly define where that money will come from. If you want to up your mortgage payment by $200 a week, you may have to reduce the amount of money you put into savings or cut back your mobile phone plans.
Don’t reevaluate your budget until you see at least 5-6 houses.
*Protip – Don’t visit more expensive houses before you reevaluate your budget. If you want to increase your budget, do it based on money you can afford. Don’t stretch yourself to afford a house you saw and fall in love with. That’s a recipe for money troubles.
Get comfortable with market forces
The idea of overpaying for a house is difficult to gauge because market forces fluctuate.
After buying your house, you may notice similar houses in the area selling for less. This doesn’t mean you overpaid.
If you are happy with your house and the way it fits your family, and you stayed within your budget, the selling price of homes around you immediately following your purchase shouldn’t matter.
Be comfortable with market forces, knowing prices fluctuate and something you buy today might be worth less in 6 months, and in 16 months it might be worth more.
In a place like Milton, it will almost undoubtedly continue to appreciate over the next 5 years, even if there are small dips.
If you shop within your budget, you can’t overpay. You just have to be realistic and disciplined about your budget