How to Buy a House in a Hot Real Estate Market
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When ZeQuesha Holmes-Hutton started looking for homes in North Carolina, she knew she wanted to find one within her budget. “I wanted something that I could afford and live my life and not just work to pay my mortgage,” she says.
The problem: The houses that met his needs in Charlotte, where his daughter lived, were expensive and attracted a lot of offers. Shopping largely online while living in New Jersey, Holmes-Hutton browsed around 150 homes. Eventually, she widened her search, considering homes farther from town.
Then Holmes-Hutton found this one: an old house in Troutman, about a half-hour drive from Charlotte. When her real estate agent showed her the house, “it was like something clicked and it was like, ‘ZeQuesha, this is your house,'” she says. It was the third house she had made an offer on, and for $275,000, it was hers.
Home prices have risen dramatically over the past two years, with the median listing price topping $400,000 for the first time in March. The problem is that there are not enough houses on the market and too many people trying to buy. That leaves buyers in a tough position, having to compete with dozens of others for the few homes available, with bidding wars rapidly driving prices up to unaffordable levels. After dealing with the shock that your “dream home” might be out of reach, buyers wonder what trade-offs they need to make to become owners.
“My goal was to own a house,” says Holmes-Hutton. “It didn’t have to be the best house in the neighborhood. My goal was to become a homeowner. »
Experts say there are a few steps you can take when you find the prices you see on the listings don’t fit your budget. Here are their tips.
Plan before you watch
Buying a home is a big decision and requires preparation. Kelsey Wakefield, a real estate agent in Chico, Calif., says she starts her clients with a buyer’s consultation to go over the process. Even before that, or at least before they start looking for homes, she wants them to talk to a mortgage lender about what they’re qualified for and how much home they can afford for payment. desired monthly.
“Let’s reverse engineer and tell the lender I don’t want to go over $3,000 a month on my mortgage, so with your down payment and your estimated interest rate, what does that maximum purchase price look like? ” she says.
This math means not necessarily starting to look at homes that are priced based on what your lender has pre-approved for you. Make sure you have a budget and know exactly what you’re willing to pay for a home, says Sean Pearsona certified financial planner in Conshohocken, Pennsylvania.
If you know that homes in your area are selling for more than asking price, don’t even bother looking at homes near the top of your budget. Take into account that you will have to bid higher before you start thinking about placing a bid.
“As soon as you get into the financial implications of any decision, most people will have a conversation where they will sit down and say this is what we think our budget is,” he says. Know what you’re spending now and what you’re willing to spend in the future. Next, run the house listings.
Even before Holmes-Hutton started looking at homes, she said she started working on her credit, studying how it worked for hours every day. This helped her understand what programs were available to her. “You need to know what’s out there for first-time home buyers in your state, what they’re offering, what those things entail,” she says. “Do your homework first. You have to know the basics. »
Set your priorities
When considering the financial implications of buying a home – and if you want to spend more than you expected – think about what you value in life. Pearson says you should consider your most important financial goals. If your first goal is travel, your second is to get the latest electric vehicle, and home entertainment is third, don’t jeopardize your first two for a bigger home.
“Don’t feel like you have to break your budget,” says Pearson. “You’re probably going to have to make sacrifices somewhere.” This may mean buying more of a “starter home” than getting your dream home right off the bat.
Beyond the financial aspects of buying a home, think about what you want in your living space, because you’ll likely be there for at least a few years. It could be location, size, number of bedrooms, large kitchen, garage. It’s different for every homebuyer, says Wakefield. “Most of my clients want a yard because they have pets or just want space,” she says. “Many of them live in apartments or condos and they are tired of living on top of their neighbors. They just want more legroom.
Once you know your priorities, avoid the temptation of overpriced homes. Wakefield says she tells clients to look at homes a little below their upper price range, as homes tend to be more expensive than requested. If a buyer’s limit is $550,000, for example, only look at homes $525,000 or less. “I’m not going to waste their time and I’m not going to waste my time by not writing good offers that won’t be accepted over and over again,” she says.
As you start looking, you may not find homes that have everything you want. Wakefield tells its buyers to follow the “80-10-10 rule,” meaning a home with 80% things they love, 10% things they can live with, and 10% things that they can change. “The reality is that no house is perfect unless you build it yourself, and even then there are things you mess up that aren’t perfect,” she says.
Don’t let aesthetic issues get in the way of an otherwise good home, says Wakefield. Paint and floors are relatively easy and inexpensive to change, especially compared to the price of a house. The same goes for cabinets, counters, windows, and landscaping, all of which can be adjusted to suit your needs. “There are a lot of things you can change if you save money,” she says. “The only things you can’t really change are the location of the house and the floor plan.”
Keep these costs in mind when budgeting for your home, Pearson says. Beyond the cosmetic changes to turn that new home into a home, consider maintenance and potential repair costs. You never know when the roof or sewers might need an expensive repair. “Just buying the house is part of the equation, but certainly not everything,” he says.
Adjust your budget
Beyond changing your expectations about the type of home you want, you might find yourself looking for ways to stretch your budget a bit to get the right home. When you do this, understand what’s changing in your budget, says Pearson. It starts with having a budget and knowing what you are spending money on. From there, you can figure out if the extra few hundred dollars a month that will need to be spent on the mortgage will come from money you’ve been using for non-essentials, or if you don’t have that money to spare. resell.
“Is it just coming from the entertainment and food budget or is it coming from retirement savings?” he says.
Adjusting your budget also means having realistic expectations about your long-term finances. A 30-year fixed-rate mortgage won’t change significantly over time, but rent and your income will, Pearson says. If you’re in a rush when you first buy the house, make a plan to increase your income over the next few years. And keep an eye out for big expenses like renovations if you end up going over budget. “Things are going to change and it’s fine and quite normal for people to move in and feel like we just spent a lot of money here,” he says. “Breathe.”