Finding the perfect property is about discovering that sublime mix of affordability, needs met, and location. That makes it sound pretty simple. I’ll leave you to figure out the second and third points in that short list. What I want to discuss is the first one: affordability. The price you are able to pay (or shall I say, the price that you should pay) is not determined by the list price of your prospective property. Sure, you’ll use this as a benchmark to figure out if a house is even in your league or not. But this isn’t the only price you’ll pay. I won’t make any assumptions that you’ve bought a home before, so forgive me if this is a little elementary. Here are three ways that people build up further costs in addition to what they’re paying to but the house.
1) Closing Costs. Closing costs have a way of sneaking up on first time buyers. Because closing costs add between 2 and 5 per cent to the price tag of your home, this isn’t cheap at all. So don’t look for homes that are hitting the ceiling at the top of your budget. Leave yourself some wiggle room. There’s such a thing as leaving yourself “house poor”. House poor is when you have more house than you can comfortably afford. Leaving money aside for closing costs in just one more way of making sure this sad state of affairs doesn’t happen to you.
2) Repairs and Other Issues. Boy, this can be a broad category. I’m talking here of electrical repairs, termite issues, plumbing upgrades, roof patching or replacement. The list could go on and on. This is why it’s vitally important that, before you buy a house, you get a qualified house inspector to take a look at things. He or she will find problems that you simply don’t have the experience or skills to notice as a first time home owner. Even though this inspection can cost several hundred dollars, I bet it’ll save you a lot more money than that if you are buying a second hand home. In my own experience, my home inspection saved me thousands by revealing a critical safety issue, just before I closed. I was able to force the bank to pay for and perform the repairs themselves, and fast. My closing wasn’t delayed and I saved about $4000. Get the inspection, folks. Get the inspection.
3) Furniture. You’d be surprised how many people overlook this. If you spend all your money on your house and leave nothing left over to furnish it...what are you going to sit on? Where will you sleep? In what will you store your food? Leave yourself some wiggle room for furnishings. You’ll be glad you did.
As you can see, the price you end up paying for a house exceeds the asking price. It’s with this in mind that you should make offers and find an amount that you can actually afford, not one that you would like to be able to afford.