It’s one of the hard and fast rules of buying a new home: know how much you can afford and stick within your budget. Conventional wisdom says that looking at homes outside of your price range will only set you up for frustration because you’ll want what more house and more amenities than you can afford.
For the most part, all that is true. But, there are certain situations in which you may want to break the rules and look at homes out of your range. You may even want to purchase one of those houses—with a few caveats.
Here’s when looking at homes above your budget might make sense:
You need to rein in your expectations. Sometimes, it’s hard to know what you can expect in your price range. This is particularly true if you are a first-time homebuyer or haven’t been in the market for some time. You may have unrealistic expectations for move-in ready properties within your price range.
Taking a look at a few properties above your price range can help you gain a better sense for what condition, amenities and location you can expect in your price range.
You aren’t finding anything. In a tight market, there is a lot of competition among buyers. This is especially true of homes priced in the low- to mid-range. Sometimes it pays to look at homes above your price range. It may mean waiting until you’ve got more money to put down. It may mean asking a family member for some help. But, if you aren’t finding what you need, moving up your budget just a bit could be your answer. One rule that still applies however: don’t move your budget higher if it will leave you scrambling to afford your mortgage payment every month.
You will save on other costs. Sometimes saving on other expenses can end up costing you less over the long run if you purchase a higher-priced home. For example, you may have hoped for a certain location because it makes for an easy commute or it has good public schools. But, maybe homes in those neighborhoods are a bit out of your price range. However, if you’re able to save money on gas every day with a much shorter commute or save the cost of private school tuition, you could come out ahead by paying a bit more for your house upfront.
It could be a better deal. Sometimes homes within your budget may need renovations. If you’re finding that to be true, house after house, you may want to consider a higher-priced home that’s move-in ready. You could find a great deal on a house that’s newer and doesn’t require major renovations. You’ll save money over the long run.
It may be more manageable than you think. You’ve gotten your pre-approval and made the prudent decision to stay below your pre-approved limit. But, you may not have stopped to consider than an extra $10,000 usually means only an additional $40 to $50 per month on your mortgage payment. It makes sense to consider your monthly payment, not just your overall mortgage. With interest rates near historic lows, this is true now more than ever.
Whether you’re just looking at higher-priced homes or considering moving your budget upward to purchase one, the decision is yours. Be sure you are well-informed and understand the impact on your financials if you plan to move closer to the top of your pre-approved limit. While there are situations where you can come out ahead financially, you need to do your homework so you understand all impacts and make the decision that’s best for you over the long term.
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