When to Increase Your Home Budget and When to Stick to Your Plan


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Before the pandemic’s hot housing market, there was a simple profile that constituted an “A” buyer, according to Brian Copeland, a real estate agent in Nashville, Tennessee.

“Four years ago, an ‘A’ buyer was someone who was pre-qualified for a loan, had 3% down payment, and could go out that weekend and buy a house,” said Copeland, who is also president of the Greater Nashville Industry Association. Real estate agents. “Now an ‘A’ buyer has all the money.”

Plus, today’s top buyers are willing to forgo appraisals and inspections and, in some cases, don’t even see the home they’re buying in person, he said.

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“Everyone is in a rush,” Copeland said, adding that affordable housing for the middle class is “absolutely suffering.”

The prices go up

Americans are aware of the difficulties they face in buying a home. More than 70% of American adults think the housing market is currently in a bubble, and more than half say it’s a bad time to buy a home, according to a Momentive survey of more than 7,000 adults.

Price is a major factor keeping potential buyers on the sidelines – around 38% said they had delayed or canceled home buying plans due to inflation. People of color were also more likely to put off buying a home due to rising costs, the survey found.

“More scuttled or delayed purchase plans among these groups threaten to exacerbate the already wide gaps in homeownership rates across racial and ethnic lines,” said Jon Cohen, director of research at Momentive.

In February, the median U.S. home sale price was $357,300, up 15% from a year earlier, according to data from the National Association of Realtors.

At the same time, mortgage rates are also rising, which means buyers who need loans will also pay more for them, said Danielle Hale, chief economist at Realtor.com.

This can hurt younger consumers, as well as first-time buyers, according to Hale. It also means that home ownership as a path to wealth building is now out of reach for many.

“It’s a very competitive market for those buying at the top of their budget,” said Peter Murray, real estate agent and principal broker at Murray & Co. Real Estate in Frederick, Maryland. “There are a lot of disappointments.

The calculation of money

Some homeowners may be tempted to stretch their budget to buy a home, especially if they’ve spent months searching and outbidding.

According to Marguerita Cheng, certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland, stretching your budget can be a good idea in some cases.

“There are situations where I’ve told people it’s okay to stretch, but just understand the impact it’s going to have on other areas of your life,” she said.

For example, it might be a good idea to pay a little more if the move will reduce other expenses or if you anticipate lifestyle changes that will free up space in your monthly budget. This could include going from two cars to one, or having kids who will be entering public school soon, which means you don’t pay as much for child care anymore.

If you calculated your budget using your base salary, not including bonuses, you might also be able to afford more, she said. And, if you have no consumer debt, are saving enough for retirement, and have a solid emergency fund, there may be more wiggle room than you think. in the beginning.

The time you plan to spend in the house also matters. If you plan to live in a house for more than five years, it might be a good idea to pay a little more now.

When not to stretch

On the other hand, there are situations where it doesn’t make sense to increase your home buying budget.

Cheng says to stick with your original plan if paying more would make it difficult to contribute to other financial goals, like saving for retirement or paying off debt.

“If the only way this stretch is happening is to borrow retirement money, I would probably say that doesn’t make sense,” she said.

If the only way this stretch happens is to borrow money from retirement, I’d probably say that doesn’t make sense.

Marguerite Cheng

CFP, CEO, Blue Ocean Global Wealth

She also warned against throwing away all your cash savings to afford a more expensive home. You should budget for variable costs such as taxes, insurance, and repairs.

It also doesn’t make sense to stretch your budget to a point where you can only afford it with tax breaks, Cheng said. If these benefits disappear in the future, you will be in trouble.

What to do if you can’t pay more

Buyers who can’t stretch their budget have a few options.

“Either they pause their house search or they have to readjust their search criteria,” Murray said.

Exiting the buy market might make sense for some who need more time to save. It could also be a bad idea, though — if prices continue to rise, you could be pushed out of the market even further, Copeland said.

That means rethinking your must-haves might make more sense. This includes looking at different neighborhoods, including those that aren’t as popular or might be farther from city centers. They may also need to be flexible about the size or condition of the home they buy.

They should also have all of their paperwork ready to go so that when they see a home they like, they can make an offer immediately, Hale said.

“To compete in this market, you can put more money into the problem or you can be really prepared and above it,” she said.

Working with a planner or financial adviser can help buyers figure out what they can really afford to spend on a home, Cheng said.

“The loan officer is going to be very helpful in helping you structure your loan, the realtor is going to help you find a house,” Cheng said. “You might think having a financial planner is overkill, but they’ll really help you see how it affects your situation.”

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