Considering Stretching Your Home Buying Budget? Ask Yourself These Questions.
Take time to think through long-term implications when you weigh the possibility of expanding your budget for purchasing a home.
The past year has presented somewhat of a double-edged sword for hopeful homebuyers: mortgage rates have dropped to historically low percentages, but competition for existing homes has skyrocketed. These two unavoidable facts leave homebuyers in the tricky position of wanting to take advantage of low interest rates, but losing out on offer after offer on ideal homes.
With so many people offering tens of thousands of dollars above asking price, one tempting solution is to raise your initial home buying budget. Take time to think through these questions to determine if that’s the best route for you.
What loan amount do you qualify for?
One key aspect you likely considered in setting your initial home buying budget is how large of a home loan you qualify for. If your initial budget sits at or near the top of that loan amount, stretching your budget any further is likely not a good move.
If you do still have some space in your loan ceiling beyond your original budget, think through the remaining questions to determine whether it makes sense to stretch a bit. Just because you can borrow more money doesn’t mean you should, so careful consideration is key.
What’s your monthly budget?
Given that it’s no longer necessary to put 20% down on a home, many people are technically able to get into a home that’s above their planned budget. However, just as important as the down payment are the monthly mortgage payments and how they factor into your overall financial situation.
In general, a good rule of thumb is that your mortgage payment should not be greater than 28% of your gross income. Everyone’s financial situation and goals differ, and it’s important to also factor in other loans, closing costs, and maintenance.
Fortunately, today’s low interest rates mean much lower monthly payments. Still, many families discover that even with the extra wiggle room from the low rates, they lack a competitive spending edge.
Are you willing to change your lifestyle?
If you’re pushing up against that recommended percentage or the limit you’d laid out based on your own financial landscape, the decision to stretch your budget further comes down to whether you’re willing to make lifestyle changes in order to afford a home. If you choose to take on higher bills, your spending habits would need to shift quite a bit in order to accommodate that hike.
As COVID restrictions lift and life finally resumes a sense of “normalcy,” many people are rushing back into packed social calendars, travel with friends and family, and events like concerts and plays. After such a long time away from these joys, consider realistically how much you’ll be willing to cut back.
Tracking your spending for a few months or looking back on past spending (pre-pandemic) will help you determine your patterns and identify where you may be able to snip away some extra entertainment expenses in favor of a higher mortgage payment. Being honest and realistic is key. Before purchasing a home, you sit in the driver’s seat. After that contract is in motion, having to cut back on spending can feel much less empowering than choosing to do so up front.
What are the pros and cons of buying now?
In terms of the real estate market and your current life situation, what’s in it for you to buy now? What are the possible costs or benefits of waiting a year or two?
Of course, no one has a crystal ball, so this one is tricky. Many experts predict that the housing market won’t slow down anytime soon, so waiting might end up being costly. However, evaluating your life circumstances and future plans can help you map out the ideal timing and avoid hopping into the housing market just because everyone else is.
For example, if you or your partner recently became self-employed, loan approval will be much smoother after a couple of years of filed tax returns. On the other hand, if you’re looking to grow your family soon, or are beginning to work from home full-time, having that extra space sooner than later is likely worth sifting through the market’s current competition, or considering other options like building a new home instead.
What do you want vs. need in a new home?
When getting specific about which homes and options to stretch your budget for, consider your core priorities. What space does your family need? What lifestyle are you looking for? What location will be conducive to that lifestyle in terms of commute, schools, and entertainment options?
For many, the time to buy is now, but the inventory simply doesn’t meet their core priorities and needs — let alone what they really want in a home. Fortunately, there are options besides staying stuck in the dwindling inventory of existing homes. When you build custom, you have the power to make budget decisions up-front while prioritizing exactly what you need and want.
Avoiding the frenzy of competition gives you time and space to make thoughtful decisions, and tailor your new home to what really matters in your life. Plus, the home building process has never been simpler. With an Atmos project manager by your side every step of the way, you get to skip the nitty gritty details and focus on the aspects of your home that matter most to you.
Ready to get started on the custom Atmos home of your dreams? Begin your homebuilding journey today!
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