The Number One Money Saving Rule When Buying A New House
Are you in the market for a new home? Perhaps your children have all grown up, moved away from home and now you need to downsize. On the other hand, maybe you have just started your family and you need more room so your children can have their own bedrooms, better schools and a backyard to play in. Whatever your reason, when you're looking for a new home there is one rule, above all others, that you need to consider. Pay attention --- following this rule will eventually save you a lot of money!
The most important thing you can do when looking at new homes is to prepare yourself. If you are looking in a certain neighborhood, you should not only know which homes are for sale in that neighborhood --- you should also know which homes in the neighborhood recently sold. Your list should include the size of the homes that sold and final price they sold for. Why is this information so important?
When it comes to home prices, you never want to spend more for a home than the market value. How is the market value established? It is simple. The market value is set by what other comparable homes in the same area have sold for. If several two-story, four bedroom homes have sold for $200,000 to $220,000, you would say the market value is right around $210,000.
It is easy to walk into a home and instantly fall in love with it. This is particularly true for women. A new mother might instantly picture the nursery decorated in a certain way, or they may see the kitchen proclaim that it is just the way they have always dreamed of their kitchen looking. That is all well and fine. But if the house is priced way over the market value, it will be better to move on. It will not make financial sense to pay more than the true value of the home. Let me explain.
Real estate agents have long taught their clients that it is not wise to own the biggest and most expensive house in a neighborhood of smaller, less expensive houses. The reason is simple: You want your house to grow in value, not decline. As you are paying your mortgage you want the equity in your home to grow. That is difficult for a luxury home in a working class neighborhood because its value is impacted by the homes that surround it.
Likewise, if houses in the neighborhood are selling for $210,000, but you pay $275,00 simply because you "love the house," you will start building equity in your home until you pay it down to the market value. That may take ten to fifteen years! In the meantime, if you had to sell for any reason, your mortgage would be "under water." You would owe more than the market value of your home. That is not a good position to be in!
Yes, the number one rule when buying a house is to come prepared. Know what houses have sold for in the areas you are searching. Never pay more for a house than its fair market value.
