Everyone’s talking about the real estate gold rush. And buyers are doing some pretty crazy stuff to stay competitive—like offering way over the asking price and, in some cases, offering the naming rights to their firstborn child. Yikes!
This hype comes from some real factors influencing people to act quickly. Since the start of the pandemic, mortgage interest rates have reached all-time lows. We’re talking rates in the 2 percent range (and for reference, 3 percent was the gold standard for decades).
And with those low-interest rates comes a lot of demand and not necessarily a whole lot of supply. According to the National Association of Realtors, in June, active inventory (aka houses for sale) was down 18.8 percent from the previous year, driving home prices up 23.4 percent. Look at it this way: A house that would have sold for $250,000 last year would sell for more than $308,000 today!
All these numbers are making potential homebuyers feel anxious about affording a home in their lifetime. But this FOMO (fear of missing out) is also causing people to make some major money mistakes.
So, how do you survive the real estate gold rush and avoid homebuyer’s remorse? I’m glad you asked.
3 Ways to Avoid Homebuyer’s Remorse
I want you to own a home. I just don’t want the home to own you. To avoid a financial mess, you need to understand the housing market traps that are keeping people broke.
Avoid Aggressively Overpaying
In a recent study done by our team at Ramsey Solutions, 60 percent of people who bought a home in the past three months paid above asking price. Look, I know you’ve got to have a competitive offer in this market. I’m fine with you paying a few thousand dollars more to sweeten the deal. I just don’t want you paying $50,000 over on a $250,000 house, for example, just to beat out the competition.
Don’t get in a bidding war with money you don’t have. Adjust your expectations—not your budget.
Don’t Skip the Appraisals or Inspections
According to that same research study, 3 in 4 home-buying hopefuls said they’d waive the inspection and appraisal to get the house. Think about this: Would you buy something on Amazon without checking the reviews first? Probably not. So why would you do it for a house worth hundreds of thousands of dollars?
The inspector’s report gives you the information you need to decide to buy the home as is or to negotiate with the seller to fix any problems or reduce the price. Skipping inspections and appraisals may get you the keys, but it could turn the home of your dreams into a giant, expensive house of your nightmares.
Budget for a House You Can Afford
That Ramsey Solutions research study also found that 75 percent of Americans worry they won’t be able to find a home in their budget. That tells me they’re not financially ready to buy a home. Juggling a mortgage, maintenance costs, taxes, and homeowner’s insurance with no margin for anything else is a stressful way to live.
The best way to buy a house is to pay for it straight up with cash money. But I get it—few people are willing to wait that long for a house. So here’s the stress-free route I would take: Save at least a 10 percent down payment. Twenty percent down is even better to avoid PMI—Private Mortgage Insurance. That’s a monthly fee you pay the bank to protect them in case you’re unable to pay them back.
And when it comes to the mortgage, only get a 15-year fixed-rate mortgage where your monthly payment isn’t more than 25 percent of your take-home pay. That way you’ll have enough margin in your budget to breathe and attack other money goals. And bonus: You’ll have a paid-for house in 15 years—max!
Patience Is 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’s demand, houses will keep being built. Make smart decisions, even if it takes some sacrifice and time, and you’ll be in a great financial place (and home) later on!