Today’s real estate market is a double-edged sword for home buyers. On one hand, it is the perfect time to buy a home. Mortgage rates are still hovering just above historic lows, which gives you an opportunity to save significant money on monthly payments. However, the inventory of available homes to buy is also at record lows, which gives sellers a huge advantage over buyers. This means that when you find a home you want to buy, you will most likely be in a bidding war. In this scenario, it is important to act decisively and act quickly. You will need an accurate picture of what you are willing to spend and what you are able to spend. This is key to making decisive decisions. Having an accurate understanding of what you can spend requires having a realistic budget. 

Budgeting for High Price Home Buying

There are lots of aspects to a home buying budget. An important thing to consider regarding home buying budgets is that it’s not necessarily a single budget. While some are able to buy a house using entirely cash, most people need a mortgage. This means you need to budget for what it takes to get a mortgage. Then, you need to budget for continued mortgage payments. Developing a budget to account for your mortgage payments is the simplest part. Mortgage payments should account for no more than 30% of your monthly budget. To accurately budget for these payments all you need to do is add up your monthly income and your monthly expenses. Then, add in mortgage payments and make sure they are not more than one-third of your expenses. The tricky part of making a home buying budget is all the other stuff to consider regarding the home purchase. 

Mortgage Rates are still Rising

Mortgage rates have hit their lowest level in over a month since last Tuesday, but now they keep rising. On November 15th, the mortgage rate continuously increased. These rates were the highest in about 2 weeks, marking a trend of increasing. If someone were to buy a house now, this would affect the rate at which they pay off their mortgage. The rate increase can seem like a lot, but in the big picture, it is not too bad. Mortgage rates are still hovering near historic lows. It’s always important to prepare for and take into account the mortgage rates at the time of your sale. 

Prices in the United States are High

The COVID-19 pandemic has brought many consequences to our economy, one being that prices are now going up in every sector. This is because COVID-19 has caused supply chain shortages and inflation to occur. American’s are also not happy with Biden’s performance as president, which could be affecting the dollar. Consumer prices have raised sharply as the economy continues to shift and the future is uncertain. This inflation has caused the value of some houses to increase. 

Budgeting for Bidding Wars

This is a very competitive home market for home buyers. Chances are that when you find a home you like, there will be others trying to buy that home, as well. As a result, it is very common that the first bid you put in on the home will not be the last. You will probably have to increase your offer to outbid other buyers. Make sure that your budget accounts for being able to offer more than you anticipated. A good way to help work around this issue is to look at homes that are slightly below your budget. This allows a cushion for you to increase your offer and still remain within your budget. 

However, the housing market can be unpredictable. You may find yourself in a situation where you need to offer a bid higher than the appraisal value of the home. They will not give you a mortgage that exceeds the appraisal value of the home. In these scenarios, home buyers have to pay the difference between the appraisal value and the home offer in cash. You should prepare for that possibility now and add that to your budget. Consider this your war chest that you need to use in order to win a bidding war. This is cash on top of your down payment and on top of any closing costs. 

Final Thoughts

There is a lot that goes into buying a home and mortgage contracts can be confusing. The best way to navigate this process and make sure you have a realistic budget is to work with a true professional. The independent mortgage brokers at Peoples Choice Mortgage are here to help you with every step of the process. We know that buying a home can be overwhelming, especially in this market. Our job is to simplify this process and make sure you are aware of everything that is happening. We never want our clients to be surprised by closing costs or other items that should be included in any budget. 

That is why we provide a complimentary, no-obligation mortgage qualifier to all of our clients. This allows us to get an accurate picture of your financial situation so that we can help you make your budget. We want to help you buy your dream house, but we want to make sure it’s affordable and within your budget. If you are interested in buying a home and want help crafting a budget that is perfect for your situation, contact us! There are a lot of mortgage products available on the market. Our goal is to make sure we find the specific one for your needs.