Homebuyers are making more and more of this dangerous mistake – Motley's fool

The purchase of a home is a huge financial undertaking and, although the ownership of a property has advantages, it also has drawbacks. When you own a home, you assume the responsibility not only of a mortgage, but also property taxes, insurance, maintenance and repairs. And while the cost of most of these things is out of your hands (you can not prevent your property taxes from going up, and in many cases you can not avoid maintenance and repairs), the only thing you can do. can control is the cost of the house you buy in the first place.

Homebuyers today, however, fail to meet their home purchase budget. According to a recent survey conducted by real estate broker Owners.com, 38% exceeded the limits they had imposed over the past four years. In addition, new homeowners have exceeded their budget by $ 20,000 on average, which is not small.

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If you are thinking of buying a house, it is essential that you adhere to the budget you have set for yourself. Otherwise, you could find yourself over your head and risk your finances.

The dangers of going to the sea

Many buyers prefer to install in flawed buildings and therefore prefer to reduce their budgets to buy homes more in line with their checklists and expectations. The problem is that if you spend too much on a house, you run the risk of not being able to follow it.

As a general rule, your predictable housing costs should never exceed 30% of your net salary. "Predictable Housing Costs" means things like your mortgage payment, property tax bill and home insurance. (And yes, the last two can climb over time, but if you start keeping these three items at 30% of your income or less, you're in pretty good shape.)

Once you exceed this 30% threshold, your housing expenses can really begin to monopolize an unhealthy amount of your income, especially as this 30% limit do not usually include things like maintenance and repairs. And when housing absorbs too much of your income, you may fall behind on other bills, which will damage your credit.

Another thing to keep in mind is that as the owner, it is essential to save money urgently. So, if a major repair happened, you would not need to resort to credit card debt to cover it. If you buy a house more expensive than you can afford, you may spend more to cover your down payment. And this, in turn, could leave you with little or no cash reserves for unplanned expenses – related to the home or otherwise.

Buy smartly

If you are looking to buy a new home, set a budget for what you can afford to start with and commit to not exceeding it. If you can not find the right property for the price you have set, reset some expectations. Decide that you are ready to buy in a year to save more money and allow you to offer what you really want. Or see if it's wise to expand your search to different neighborhoods. If you move 10 minutes outside your target area, house prices will be much lower.

One thing you should not do, however, is to settle in a house that you know you will not be satisfied with, simply because it is within your price range. Do not forget that houses can still be updated and treated according to aesthetic revisions, but if you buy a 1,300 square foot home on a surrounding parcel of land, no amount of money will turn it in a space of 2,800 square feet. Therefore, while you can buy a house with an obsolete kitchen that's in your price range and upgrade that room once you've saved more, pay attention to just things you'll never change.