In this hot housing market, it can be hard to avoid overspending. That’s why you have to have a clear plan in place before you start looking for your next home, experts say.
Competition is tough due to low inventory of housing on the market. That means there are often bidding wars, driving up house prices, according to CNBC. Thirty-nine percent of pandemic buyers exceeded their original budget for their new home this past year, according to a recent Realtor.com survey. Yet getting caught up in the competition could have a dire impact on your finances.
Here’s How to Make Sure You Avoid Overspending in This Competitive Market
Your pre-approval is not your budget.
Your housing budget should include not just what you are paying in monthly mortgage principal and interest, but also overall housing expenses such as property taxes, insurance, maintenance and possibly homeowner association fees. Ideally, you want those total expenses to land between 25% to 35% of your income.
Have an emergency fund in place.
In addition to your down payment, have an emergency fund in place for any unexpected expenses. Even if you don’t have the generally suggested three to six months in expenses saved, make sure you have something established before you buy a home, Wright said.
Anticipate hidden costs.
There will be other costs associated with getting into the home such as moving expenses, furniture or potential upgrades or renovations. Be realistic about those costs. Forty-eight percent of those recently surveyed by Ally Home said they wish they had been more prepared for the cost of home repairs.
Only look at homes in or under your budget.
Once you have a budget, only look at homes that fit into it — or come in under it, Holbert suggests. “Most likely the houses you are looking at will go above listing price,” she said. “If you look at homes a little lower than your budget, it will give you flexibility to make competitive offers.”
Keep an eye on interest rates.
While interest rates have been near historic lows, they fluctuate up and down. That means they can rise in between the time you get your mortgage pre-approval and the time you close. Even a small move higher in rates will mean a larger monthly payment.
Weekly Mortgage Rate Update
Home prices continue to accelerate while inventory remains low and new home construction cannot happen fast enough. There are many potential homebuyers who would like to take advantage of low mortgage rates, but competition is strong. For homeowners, however, continued low rates make refinancing an option worth considering.
The Freddie Mac weekly survey shows the average rate for a 30-year fixed mortgage is 2.99%, which is 0.04 points higher than last week, and down 0.19 points from this time last year.