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11 Ways to Stay Within Your Budget When Buying a House


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For most of us, our home is the most expensive asset we’ll ever own.

But far from treating our homes as dispassionate investments, we get swept up in the image of the home we want. The perfect kitchen, the perfect master bathroom, the perfect patio for entertaining. Our homes become status symbols — and often impoverish us in the process.

Unfortunately, the sacrifices don’t become clear until after giddily signing on the dotted line. Nearly two-thirds (64%) of millennial homebuyers report buyer’s remorse after purchasing, according to a 2021 study by Bankrate.

Don’t join their ranks when you buy your own property.

How to Stay Within Budget on Your Next Home

Rather than rushing to buy, keep a cool head with your long-term financial goals firmly in mind. Stay within your budget by following these simple steps.

1. Consider Moving to a Less Expensive Market

Americans aren’t as adventurous as they like to pretend. According to North American Moving Services, 72% of Americans live in or near the city where we grew up.

But in an age of telecommuting and digital nomads, many Americans either can work remotely already or can qualify for a job that lets them work anywhere. In other words, you should rethink that expensive housing market where you live currently. You don’t necessarily need to live there, even if you never really questioned it before.

Just for fun, explore other places you’d enjoy living. That could include moving to a state with lower taxes, a city or town with far lower housing costs, or even moving abroad to a country where $2,000 per month buys the good life. I live in Brazil and save a massive amount of money each month.

Get more intentional about exactly where and how you want to live. Brainstorm places where you can live better on less. You can likely find a high quality of life somewhere else more affordable.

2. Consider House Hacking

Another idea most people never consider is house hacking.

The classic house hacking model involves buying a small multifamily property, moving into one unit, and renting out the others. The rents from the neighboring units can potentially cover your entire mortgage payment. You can even use those future rents to help you qualify for a home loan!

But other house hacking models could include bringing in housemates, adding a basement apartment, or renting rooms or units on Airbnb. You could even host foreign exchange students, as my friend does — and the monthly stipend covers most of her mortgage payment.

Sometimes, saving money really does come down to working smarter, not harder.

3. Plan on a 20% Down Payment

Most homebuyers race to the bottom when asking lenders about how much of a down payment they need.

Putting next to nothing down makes it extremely easy to overborrow and overspend on housing.

Instead, aim to put down 20% on your next home. That eliminates private mortgage insurance (PMI) from your monthly mortgage payment, which can easily save you $100 or more each month.

It also helps you qualify for lower interest rates and lower upfront lender fees at settlement. Plus, at the risk of stating the obvious, you’ll have a lower monthly principal and interest payment as well.

Don’t raid your emergency fund to buy your dream home, either. Your emergency fund is the only thing standing between you and a true crisis. The good news is that your emergency fund can help you qualify for your mortgage loan, showing up as cash reserves, which most lenders require.

No one likes to hear they should save more and borrow less. But that doesn’t make it any less true.

4. Know Your Upper Limit

When you get preapproved for a mortgage, your bank determines how much they are willing to risk lending to you.

But don’t take their number as gospel or an official endorsement to spend that much on a house. If the bank’s algorithm authorizes them to lend you $300,000, that number reflects their risk tolerance, not your personal budget or priorities.

Ask your lender for a quote that includes interest rate, lender fees, and PMI. Then play around with an online mortgage calculator to enter different sale prices to get a sense for how they affect your monthly payment. Make sure you include costs like homeowners insurance, property taxes, and PMI, but don’t stop there. Start researching all the other expenses you’ll need to work into your budget after buying a home.

That starts with ongoing repairs and property improvements. Budget around 10% of your monthly mortgage payment for them, because they’re inescapable.

But homeowners’ other housing expenses don’t end there. If you buy in a neighborhood with a homeowners’ association, you’ll owe monthly homeowner’s association dues. Are your utilities likely to increase after your move? Are you going to need to contract with a lawn or pest service?

It’s disheartening when you first start adding up all the costs of homeownership. But better to adjust your budget before buying than join the two-thirds of younger homeowners with buyer’s remorse.

5. Reframe Your House Hunt with Your Lower Limit

Most homebuyers overspend on housing because they frame their house hunt based on their upper limit. The lender tells them they can borrow up to $300,000, so they look at homes that cost $295,000.

Instead, ask yourself the opposite question: What’s the least expensive home you can buy and still be happy? What do you absolutely need for a happy home life?

Maybe it’s good schools if you have children. Or a manageable commute if you physically report to work. Perhaps you really want a small outdoor area for grilling and outdoor eating. And you might require a minimum number of bedrooms to accommodate your family.

But maybe you don’t need a guest bedroom for Dear Aunt Lily, or Italian granite countertops, or a football field for a lawn.

Explore the least amount of house where you can live happily, and frame your home search there rather than framing it by the upper end of your borrowing limit.

6. Find a Trustworthy, Local Expert Realtor

Real estate agents get paid on commission, as a percentage of the home price. Higher prices mean higher paychecks for them.

Communicate your needs and your target home price with your real estate agent. Emphasize the need to stay within your budget. Good agents respect your finances and only show you homes within that budget.

Some agents try to push the envelope and offer to show you properties outside your stated price point. Be firm and stick to your guns. If your agent proposes more expensive homes, consider finding a new agent.

7. Stop Trying to Keep Up with the Joneses

It’s all too easy to fall into the cycle of “compare and despair.”

If your best friend just bought a house for $350,000, and you’re aiming for a budget of $250,000, you probably can’t afford to look in the same neighborhood. That’s life. Get over it.

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 $250,000 budget can do for you. Other people have their own budgets, priorities, and long-term financial goals. Even if you think you know what they are, you don’t know the whole story.

Focus on the bigger picture. By staying within your budget, you can afford to take your family on fabulous vacations, stay on track with retirement savings or even retire early, maybe start a college education fund for your kids.

Let your friends work long hours to pay for their more expensive home. You can live a better quality of life by keeping your housing budget low.

8. Avoid Bidding Wars

Only one person wins in a bidding war: the seller.

If you get caught in a bidding frenzy, you can expect to spend more than you want. When you make an offer on a house, decide how much more you’re willing to pay if the seller counters, and resist the urge to exceed that limit. In other words, be willing to walk away.

Most of all, don’t get emotionally attached to any one home. If you look at 30 homes, you might make offers on eight of them, get a counteroffer back on six, negotiate and agree to a price on two, and actually settle on one. It’s a numbers game, and you can’t afford to make emotional investment decisions.

Stop trying to “imagine yourself living in the home,” because once your imagination runs away with you, you’ll bend logic to justify an emotional decision. Focus on your needs and which properties meet those needs at an affordable price point.

Sound sterile and boring and no fun at all? When you’re working with assets that cost hundreds of thousands of dollars, leave “fun” out of it and make rational investment decisions.

9. Make the First or the Last Offer

Most sellers who have only listed their home within the last month or two haven’t started to sweat yet. They have the luxury of telling themselves the right offer is coming.

But sellers with homes that have sat for three, four, or five months start questioning themselves and their home. They wonder why they haven’t gotten any bites. That makes them ripe for a lowball offer.

Some buyers shy away from homes that have sat on the market for a long time, assuming that there must be some hidden defect. But it could simply have bad curb appeal, or be too unique for the average buyer.

Ask your real estate agent to run a search on homes that have sat on the market longer than 60 days. Tour these houses and consider making a series of lowball offers to see who responds.

In a hot or even warm real estate market, you may not find many homes lingering for sale. Try an alternative tactic in these markets: make an offer before anyone else.

That means touring homes the same day they’re listed, and if you’re interested, getting an offer in the same afternoon or evening. You can often avoid bidding wars and high offers by simply getting your offer accepted before any other buyers have a chance to make a bid.

10. Get a Home Inspection

Always, always do a home inspection before settling on a home.

That means including a contingency clause in your contract, stating that your offer is subject to a satisfactory home inspection. From there, hire a home inspector to go in and provide a full report on the condition of the home. Your real estate agent can refer you to a local inspector.

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 reduce the purchase price to cover them. Or you can take your offer off the table without losing your earnest money deposit.

Fail to get a home inspection, and you can find yourself stuck with a $50,000 home repair after moving into the property. Hardly the housewarming gift you were hoping for.

11. Don’t Forget Closing Costs

When budgeting for a home purchase, don’t ignore the thousands of dollars in closing costs that you’ll incur at the settlement table.

That starts with mortgage lender fees, including both points and fixed fees. See your lender’s Good Faith Estimate of closing costs when you get preapproved as a borrower.

But closing costs don’t end there. They also include home inspection reports, appraisals, title company fees, transfer taxes, recordation fees, and a dozen other homebuying expenses.

When in doubt, estimate on the high side. Buying a home is expensive!


Final Word

Staying within budget when buying a house takes discipline. Know what you’re willing to spend, and refuse to look at homes outside your price range.

Don’t be afraid to get creative through strategies like house hacking or moving to a less pricey housing market.

Most of all, be patient. Remember it’s a numbers game, and it’s only a matter of time before the right home comes along.

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