During the purchase process, your price point is one of the most important factors of what homes you can and should consider buying. In fact, knowing and being firm with your price point will save you time and a lot of headaches because you likely won't waste effort viewing homes you know are out of your range. Here are our tips on how to find out your price point and not be broke after your next home purchase!
- Do not rely on your bank, lender, or agent to set the price that you should spend on a home. While you can use their expert knowledge to help you pin point it, it is important you come to the conclusion yourself as it is almost impossible for any of them to fully comprehend each unique financial situation.“Prequalification is a good way to estimate the size of loan you’ll be able to obtain,” says Jessi Hall, real estate writer. “But just because you qualify for a $200,000 loan doesn’t mean you should buy a $200,000 house.”
- Do not let your emotion over rule your logic. Some buyers buy purely on impulse, or when they "fall in love" with the house, despite the fact the purchase may not be a sound financial decision for them. Make sure to base your decision on actual facts and calculations instead of just feelings so you can feel confident with your purchase.
- Just because you can afford minimum monthly payments right now "as long as nothing goes wrong" doesn't mean something won't. Making minimum monthly payments on anything - mortgages, automobiles, credit cards - is not as smart as paying a little extra more each month to decrease the balance faster. The decrease of balance also greatly decreases the amount you'll pay in interest, which can mean a saving of thousands of dollars. You also have to make sure you will still have enough in the case of an emergency or unexpected home maintenance.
- Rely on how much you can easily afford. Aside from any calculations made from banks, lenders, or agents, sit down and make your own calculations. Real estate writer Jessi Hall recommends multiplying your annual household income by 2.5 for a rough estimate of how much house you may be able to afford. With this number in mind, set a monthly budget for yourself and practice making mortgage payments, including property taxes and insurance, for at least three months to make sure everything is manageable, while still including back up reserves for emergencies.
- Determine how much buying a home will affect your financial position in the future. Buying a home is a long term investment and means more than just what you can afford today. Plan for the future, like a wedding, college tuition, etc., to assess how large commitments may affect your ability to finance your mortgage. The important thing is the be prepared.
If you’ve been through the purchase process, how did you best determine how much home you could afford? Are there any other tips to share? Let us know in the comment section below!
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