Dennis and Marshall Lynch’s Tips to Avoid Overpaying for a Home
How can you make sure that you don’t overpay on a home in today’s home market?
In this post, Dennis Lynch and Marshall Lynch, the managers of Dennis and Marshall Lynch: New Jersey Real Estate Experts, explore some of the best practices you need to make sure you’re not spending too much on your home.
Buy with your head, not with your heart
The first step in making sure you’re not overpaying for your home is to always have logic at the front of your home-buying process and not let emotions run the show.
Buying a home is not only the biggest financial decision you will ever make (probably), it’s also a very emotional decision. Let’s say you’re in search of your perfect home, and you’ve found “the one.” It has everything you’ve wanted in a home, your spouse/partner or your family is in love with it, and you can’t imagine living anywhere else. You know it’s overpriced, but you don’t care. It’s “the one.”
But emotions can easily take over and cause you to make a big mistake. Just because the home is everything you want doesn’t mean it’s the right home for you if it’s overpriced by $50,000, $100,000, or more. Homebuyers can get locked into bidding battles over hyperinflated home prices, especially in high-demand metro areas.
The principle that will help you avoid overpaying for a home in this situation is this: The right home at the wrong price is the wrong home.
Unless you have disposable millions, overpaying even by $50,000 can have significant financial repercussions. That extra $50,000 that you overlooked because you were buying with your emotions and not with your head can turn into an extra $100,000, $200,000, or even more depending on how your loan is structured, over a 20- to 30-year period. No home is so perfect that it’s worth losing an extra few hundred thousand dollars over. Read that sentence again!
Know your financial situation
A second tip in making sure you don’t overpay for a home is to thoroughly understand your own financial situation.
Overpaying for a home doesn’t just have to do with the sales price on the home; it also has to do with what you’re able to pay each month relative to your budget!
To put it another way, a home might be reasonably priced for the market. But if 90% of your budget each month goes to paying your mortgage on that home, it doesn’t matter how fairly the home is priced; you’re overpaying, and you’re in a very bad situation!
When you’re in the home-buying process, it’s important to take careful stock of your income, your debt, your credit, and other factors that are important to lenders.
If you have 10s of thousands of dollars in debt, especially if it’s high-interest debt such as credit card debt, it may be more crucial at this point in your life to worry about debt retirement and achieving a healthy debt-to-income ratio.
Most advisors suggest that no more than about 35% of your monthly income should go toward overall housing costs, with 25% or lower being ideal. This means that if you make $6,000 per month, no more than about $2,100 a month should go toward housing costs, and ideally, this number should be lower (or your income should be higher).
To put it another way, if the overall monthly cost of your new home would exceed more than about one-third of your monthly income, you’re overpaying.
Learn more at https://dennisandmarshalllynch.com/