A house is likely to be the most expensive purchase you’ll ever make. And if you’ve waited a long time for this day to come, you’ve undoubtedly thought about the features you desire – maybe you’re craving a huge master bedroom with walk-in closets, or perhaps a gourmet kitchen.
While you don’t want to skimp on the amenities you love, adding too many can drive up the cost and destroy your budget. By thinking about your long-term financial goals and assessing your budget before you buy, you can score the home you want without experiencing buyer’s remorse.
When you’re pre-approved for a mortgage, your Mortgage Agent 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 your Mortgage Agent thinks you can afford to spend $400,000, that number likely does not take into account your personal budget. Talk to your Mortgage Agent whether there are other expenses you’ll need to work into your budget after buying a home and if they have a great budget guide for you to follow.
When working with a real estate agent, 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. Make sure you also communicate your 'wish list', desired neighbourhood, number of bedrooms and bathrooms, pool etc.
It’s very easy to fall into the cycle of “compare and despair.” If you’re working with a budget of $400,000 and your best friend just bought a house for $500,000, 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.
Rather than obsessing over the fact that your friend bought a house with an outdoor kitchen, offer your congratulations, and then get excited about what your $400,000 budget can do for you. Maybe you’ll have four bedrooms instead of two, or you’ll have a gas oven instead of an electric one. Then, think about the ways you’ll benefit from staying within your budget, such as maintaining a healthy vacation or retirement fund, or starting a college education fund for your kids.
Imagine this scenario: You find the perfect house, you make a solid offer…and then your realtor calls to inform you that the seller has multiple offers to choose from. Competing with other buyers is no picnic, and to win a bidding war, you often have to increase your offer. This isn’t necessarily bad, as long as you’re able to stay within budget – however, bidding wars can get out of hand quickly.
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.
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. 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.
Even if the seller isn’t willing to drop the price, there are still more opportunities for negotiation when a home has been on the market for months. For instance, you may be able to ask for conditions to replace the old carpet or paint the home’s exterior. If you can identify the reason the property hasn’t sold, then you can ask the seller to reduce the home’s asking price or provide a cash allowance for the fix.
If you’re still concerned about possible hidden defects, state in your bid that the offer is subject to a satisfactory home inspection – which is a good idea no matter what. If the home inspection reveals problems, such as issues with the plumbing, electrical system, roofing, appliances, or windows, you can ask the buyer to make the needed repairs, or you can take your offer off the table.
Staying within budget when buying a house takes discipline, so you must approach the buying process with care. Know what you’re willing to spend, and refuse to look at homes listed above your budget. If you’re unable to find a suitable property after a few weeks or months, revisit your budget to see if you have any wiggle room. If not, hold out – it’s only a matter of time before the right house comes along.
How did you stay within budget when shopping for a house?