3 Ways to Survive the Real Estate Gold Rush and Avoid Home Buyer’s remorse
Everyone is talking about the real estate gold rush. And buyers are doing things crazy enough to stay competitive, like offering way more than asking price and, in some cases, offering the naming rights to their firstborn. Ouch!
This hype comes from some real factors that make people act quickly. Since the start of the pandemic, mortgage interest rates have reached historic lows. We’re talking about a rate of around 2% (and for reference, 3% was the gold standard for decades).
And with these low interest rates, there is a lot of demand and not necessarily a lot of supply.
According to the National Association of Realtors, in June 2021, active inventory (aka homes for sale) was down 18.8% from the previous year, pushing home prices up 23.4%. Look at it this way: a house that sold for $ 250,000 last year would sell for over $ 308,000 today!
All of these numbers make potential buyers feel anxious about buying a home in their lifetime. But this FOMO also causes people to make major financial mistakes.
So how do you survive the real estate gold rush and avoid the remorse of homebuyers? I’m glad you asked.
3 ways to avoid buyer’s remorse
I want you to own a house. I don’t want the house to own you. To avoid a financial mess, you need to understand the pitfalls in the housing market that keep people from going broke.
1. Avoid paying too much aggressively
In a recent study by our team at Ramsey Solutions, 60% of people who bought a home in the past three months paid above the asking price. Listen, I know you have to have a competitive offer in this market. I agree that you pay a few thousand dollars more to sweeten the deal. I don’t want you to pay $ 50,000 more on a $ 250,000 house, for example, just to beat the competition.
Don’t go into a bidding war with money you don’t have. Adjust your expectations, not your budget.
2. Don’t skip reviews or inspections
According to the same research study, 3 in 4 home buyers said they would forgo the inspection and appraisal to get the home. Think about this: Would you buy something from Amazon without first looking at reviews? Probably not. So why would you do it for a house that is worth hundreds of thousands of dollars?
The inspector’s report gives you the information you need to decide whether to buy the house as is or to negotiate with the seller to fix issues or reduce the price. Ignoring inspections and appraisals can give you the keys, but it could turn the house of your dreams into a giant, expensive house of your nightmares.
3. Budget for a house that you can afford
This Ramsey Solutions research study also found that 75% of Americans fear they won’t be able to find a home within their budget. This tells me that they are not financially ready to buy a house. Juggling a mortgage, maintenance fees, taxes, and home insurance with no margin for anything else is a stressful way of life.
The best way to buy a home is to pay for it directly with cash. But I understand, not many people are willing to wait that long for a house. So here is the stress-free route I would take: save at least 10% down payment; 20% down payment is even better to avoid private mortgage insurance. These are a monthly fee that you pay the bank to protect them in case you are unable to pay them back.
And when it comes to the mortgage, only get a 15 year fixed rate mortgage where your monthly payment is no more than 25% of your take home pay. This way, you will have enough room in your budget to breathe and tackle other financial goals. And bonus: you will have a paid house in 15 years max!
Patience is the key
Listen, rushing into a house you can’t afford is going to keep you stressed and broke. The antidote here is simply patience.
As long as there is demand, houses will continue to be built.
Make smart decisions, even if it takes sacrifices and time, and you’ll be in great financial shape (and at home) later!