Home ownership is perhaps the ultimate dream for many. However, there’s a distinction between home ownership and owning a reasonably affordable home.
There’s a danger in taking on too much house and if you aren’t careful, you could end up losing the home you worked diligently to call your own.
When purchasing a home, it’s also important to know how to estimate the property value accurately. Here’s how to know whether you’ve taken on too much.
Listed Price and Real Estate Agents
You must always conduct your own analysis of market value and never depend on the agent’s view concerning market value.
Your view will be much more precise once you establish the correct way of determining market value. Although real estate agents know how to determine market value, they also learn to complicate things.
Some of this can affect your finances. For instance, in establishing market value, numerous agents consider the asking or “listed” price of homes that haven’t yet sold.
Bear in mind that the only measure of market value is what a home sells for and not the price somebody hopes to get for the home in the future. It’s also important to note that the listed cost may be inflated due to the agent who acquired the listing.
The price of a home listed for sale with a real estate agent may also undergo inflation because of commission payment. Therefore, avoid using the listed cost in establishing value.
Comparable Sales
The most precise way of determining a home’s market value is using actual comparable sales. It’s important you examine the recently sold properties that resemble yours. In particular, you should consider the location, rooms, and size.
Comparing properties that resemble yours is critical; otherwise, your last figure won’t be accurate. One way of finding comparable sales is through a “property profile,” which you can obtain in numerous states.
Signs that You’ve Taken Too Much House
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Housing takes over 30% of your revenue
Generally, your housing costs must never be over 30% of your revenue. Housing costs include mortgage payment, homeowners’ insurance, and real estate taxes.
It’s important you maintain low housing costs so you can have sufficient money left for things such as food, healthcare, retirement savings, and transportation.
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Maintenance Costs Keep Rising
It’s obvious that larger properties need more money and work to maintain than smaller ones. If your maintenance costs keep increasing yearly and your income increases cannot keep up proportionately, you’re probably headed for trouble.
If you’re like most homeowners, you probably spend between 1 and 4% of your home’s value on annual repairs and maintenance. If you discover that your budget only allows $200 monthly in upkeep but your actual expenses keep increasing, you may need to reconsider your housing situation.
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Credit-card Debt
The more debt you accumulate, the higher likelihood of it affecting your credit score negatively. When you have a balance, you always end up with more charges because of interest fees.
Even if you are not using your credit card to meet your housing costs, if your maintenance and mortgage costs aren’t leaving any room in your budget to cover other costs, it’s a clear indication that changes are necessary.
How to Avoid Overpaying for a Home
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Ensure the purchase has an appraisal
Once you make an offer on a home, it will typically include an appraisal contingency. While this is a requirement by lenders, it’s also an important tool for buyers.
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Investigate
Talking to locals and neighbors in the area where you’re purchasing a home is an important tool to establish value.
Final Thoughts
Purchasing a home is an important decision that demands careful thought. To avoid financial losses, it’s important you research your budget. This way, you’ll avoid costly mistakes.
For more information on property market, contact us at Apartment Agents or leave a comment.