This may show you how to keep away from spending an excessive amount of in a sizzling housing market
Monkeybusinessimages | iStock | Getty Images
In this hot housing market, it can be easy to break your budget.
That’s why you need to have a clear plan before you start looking for your next home, experts say.
“When you don’t have a clear budget to spend comfortably, you get connected – especially when you find a home that speaks to you,” said Philadelphia-based certified financial planner Jocelyn Wright, managing partner of PF Wealth Management Group .
“We have to be ready to go away.”
More from Invest in You:
To get a low mortgage rate, your creditworthiness is important. How to boost it
Young military families use veteran benefits to buy houses
Before you start spending after the pandemic, make these cash movements
Competition is fierce due to the low housing stock in the market. This means that there are often bidding battles that drive up property prices. In March, prices were 13.2% higher than the same month last year – the largest increase since December 2005, according to the S&P CoreLogic Case-Shiller National Home Price Index.
Many pandemic buyers responded by abandoning their plans. Thirty-nine percent exceeded their original budget for their new home in the past year, according to a recent survey by Realtor.com.
However, keeping up with the competition can have a serious impact on your finances.
“If you’re not thinking about how buying a home affects many different areas of your life, you can get in hot water,” said Lexie Holbert, home and lifestyle expert at Realtor.com.
This is how you make sure you don’t overspend in this competitive market.
Your budget is not your mortgage pre-approval
Just because a bank tells you they can take out a mortgage for a certain amount doesn’t mean that it is the budget for your new home.
Instead, after carefully reviewing your finances – before you start looking for homes – find your number.
Your housing budget should not only include monthly mortgage sums and interest, but also total housing costs such as property taxes, insurance, maintenance and possibly community fees.
Ideally, these total expenses should be between 25% and 35% of your income, advises Wright.
“Know what your parameters are so you don’t get caught up and end up buying more home than you can comfortably afford,” she said.
Set up an emergency fund
In addition to your down payment, have an emergency fund ready for unexpected expenses.
Even if you haven’t saved the generally recommended three to six months in spending, make sure you have something established before buying a home, Wright said.
Anticipate hidden costs
Guido Mieth | Getty Images
Some of your bills, such as heating and hot water, can go up when you move out of a rental apartment or a smaller house. You may have to pay for landscaping and lawn maintenance.
When moving into the apartment, additional costs arise, such as moving costs, furniture or possible upgrades or renovations. Be realistic about these costs.
Almost half, or 48%, of those recently surveyed by Ally Home said they wished they were better prepared for the cost of home repairs.
Only look at homes that are in or under your budget
Once you have a budget, just look at houses that fit in – or get under it, suggests Holbert.
“Most likely the houses you are looking at will be above list price,” she said.
“When looking at homes that are a little under your budget, you have the flexibility to make competitive offers.”
Look for a lender
When choosing a lender, consider costs, including fees and points accrued, Wright suggests.
You can also see if you qualify for incentives that can lower the cost of your mortgage, such as: B. Assistance for first-time home buyers. Also check with your employer if they offer help.
Keep an eye on interest rates
Photo technology | iStock | Getty Images