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.
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 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?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.
