Buying A House Where Prices Exceed Your Budget

March 22, 2017 - 6 min read

Home prices are on the rise and in some markets, they are mismatched. That means there are fewer homes for sale than buyers and bidding wars are back in hot areas. That’s made buying a house, especially those new to the market, feel waylaid.

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Buying A House Is A Business Transaction; Treat It Like One

You might feel like you can’t compete, especially in the hottest home buying markets. But, buying a house in your dream market is possible if you know how.

It requires the right strategy and mindset, though. Here are some ways to get that home in your dream market at a price you can afford.

It’s A House, Not Your Soul Mate

Too many buyers, especially first timers, get mushy when they’re buying a home. They expect when it’s the right house, they’ll walk into the property and angels will sing. It will “feel” perfect and no other house will do after seeing “the one.”

But buying a house is probably the biggest financial decision you’ll make. It’s part of your wealth-building strategy. Like you would in the stock market, you want to avoid mistakes. Not only is buyer’s remorse real, home buying mistakes have long-term financial consequences, sometimes big ones.

Right from he start, think like a real estate investor when you’re buying a house because that’s what you are. Keep a clear head and open mind to make the right home choice, especially in your dream market.

Leave Your Ego At Home

Be ready to compromise on some of your wish list, but not on your budget. Know your numbers going in and don’t let your pride get you caught up in the bidding wars. Definitely don’t try competing with those with bigger pockets because you can’t win.

Be extra careful when buying from investors. Many flipped homes aren’t all they appear, and buying the wrong one is a pricey mistake. That also can be true of new and resale homes sold by homeowners.

Keep laser focus on the details of these and other real estate transactions. Also, know the language of real estate and when to walk away from bad deals.

Research Your Dream Market

Invest as much time as necessary in researching your ideal market. Know all you can about the neighborhoods. Understand housing prices, key home features, past home sales history, crime stats, schools, property taxes and other costs, and amenities.

Talk to real estate professionals in those communities and start building relationships. Just don’t sign with a real estate agent before you’re ready. When you’re asking them questions, know what they can’t tell you—like about crime and school statistics. That’s steering and it’s illegal so you’ll do that research online or ask community members.

Don’t just spend time online developing fantasies about a community, though. If it’s nearby enough, spend time in the neighborhoods getting a feel for how people live there. Carry a checklist of things you want in a community and make sure neighborhoods tick the right boxes.

Literally map out which neighborhoods are best for you. In blazing hot markets like Dallas, there are multiple neighborhoods. Picking the right one for the right reasons is crucial to avoid a poor buying decision.

Think About Selling Before You Buy

One of the best ways to buy the right house is thinking ahead about resale value on that home.

Investors will tell you that you make the sales deal at the buyer’s table because the market determines sales value. That means you’ll want to know that market and invest in a home that will sell when it’s time.

Only buy based on what sells well in that market. In other words, if three bedroom homes with two baths sell best, don’t buy a house without those features, even if you love that home. Also avoid homes with funky interior layouts or outside lots you can’t or are too costly to reconfigure.

Remember, home buying is part of your wealth building strategy. What you buy now determines what you can buy later and how much wealth you’ll build long term.

Buy The Worst House In Ihe Best Neighborhood

Sometimes, the only way to get into your dream market is to buy an ugly house there. That may be one right in your perfect neighborhood or another in a transitional community nearby. You’ll know by your research.

But, you’ll need to have vision when you buy these houses. Many home buyers can’t see past hideous paint or carpet colors and outdated cosmetic features. But, if you keep an open mind when you’re seeing these houses, you can find a great one within your budget.

Find a home that fits your resale strategy but is also in the neighborhood where you’ll be happiest.

Be sure you get the right inspections and are ready to put in some work to make it what you want. But pay attention to the next step when you do.

Buy A Fixer But Avoid Money Pits

While many people want new construction, those homes are pricier in hot markets. Established communities in hot markets like Dallas also have older homes that may not appeal to all buyers. They’re outdated or need a ton of work to be livable.

But, those could be a best bet for you if you buy right. Again, go back to your research and consider your resale strategy. If you don’t plan to be in the home long enough to fix it up, don’t buy that house

If you’re staying in a house long term, you still want to avoid a money pit. To do that you have to consider what you can’t see when looking at that property. Unexpected repairs can add 10-20 percent to your rehab budget

To avoid expenses you can’t afford, don’t just opt for a conventional home inspection. Hire a qualified get structural engineer to inspect the home.

Why Hire A Structural Engineer? Because You’re Not Stupid

Because a structural engineer specializes in inspecting major structural aspects of a house like foundations, load bearing walls and beams and major systems like plumbing. They can “see” behind the walls and structure to identify serious problems costing a lot of money to fix.

Conventional home inspectors aren’t trained engineers. They only can find issues they can see, though you might miss many of those things yourself—like serious cracks or water leaks. Sometimes, a home inspector may suggest you hire a structural engineer. If they do, follow that advice because it’s worth the investment.

If there are major issues, it’s time to call in contractors to tell you what they’ll cost to fix. Once you do that, if you can still afford the house, renegotiate price. That will give you more money for renovations.

But don’t over-renovate the house. Adding more features than add value to a house in that neighborhood means at resale means you’ll end up with less money or have a harder time selling.

Nail Down Your Financing. Now.

Whether you’re a first-time home buyer or buying your next home, in this market, you want your financing in place.

Before you start home shopping, know how much mortgage you’ll need and shop around for the right one. Once you find the right lender, get pre-approved to lock in your rate.

If you need down payment help, investigate the programs in your ideal community. Thousands are out there nationwide but you’ll need to plan for them in advance. Some involve buyer education or have other requirements that take extra time to meet.

Though hot markets have low inventory, places like Denver or Santa Clara offer down payment assistance programs to help close deals. For those buying in underserved census tracts, there are special incentives that cut upfront and long-term costs. Check your eligibility for all programs well in advance.

Know if you’ll ask for seller assistance, too. See if existing government or nonprofit programs help you secure that. Or learn if you can get down payment money gifted to you by parents.

If you’re buying a fixer, know how you’ll finance the deal, including the renovation mortgages available to you.

Then, be ready to act because houses sell fastest in hot markets.

What Are Today’s Mortgage Rates?

Part of what makes a property a great investment vs a so-so investment is the cost of your financing. So find the right loan (if you’re planning a fast flip, for instance, why pay for a 30-year fixed mortgage?) is critical.

And so is shopping aggressively for the best deal on that loan. It takes at least four quotes, say researchers, to assure yourself of finding the lowest rate with the best terms. That easy to do here.

Time to make a move? Let us find the right mortgage for you

Dahna Chandler
Authored By: Dahna Chandler
The Mortgage Reports contributor
Dahna Chandler is an award-winning business and finance journalist with 20 years of experience writing for major media outlets and top blogs. She is passionate about helping wealth-minded people thrive financially by reaching their wealth objectives.