How do people get into a situation where they buy too much of a house?

I find this situation very common. Last week I wrote about how to make sure your budget can handle buying a home. I told you what factors come into play when paying for a house versus renting it.

This week, I want to discuss how some people can do all the right things and then trick themselves into buying a house that’s out of their budget. Now, this may sound like something only an uninformed buyer would do, but the reality is that most people end up buying homes that are beyond their budget.

Let me explain how this happens. Let’s say you do everything right. Find out how much you can afford, run the numbers, and then review them with your mortgage broker. Well, when you talk to the mortgage broker, they will tell you that you are approved for more money than you expected. But even if you are approved for more money, you will still say “no, I just want to stay within the budget I set for myself.” So you hire a real estate agent to start showing you houses within your budget.

You go and see several houses and although some of them were fine, they were not what you were really looking for. After a while you start to get impatient. You and the real estate agent decide to look at some properties that are over the budget amount, but you justify it by saying that they will offer a lower amount to buy the property and that will still help you stay close to your budget. After all, the mortgage broker approved him for much more than he’s looking for. So you go out and see the highest priced houses and after a couple of visits you find the most beautiful house. It has everything you want and more.

So you want to stick to your plan and make a lower price offer, but you don’t want to lose the house. So you bid a little higher than you planned and hope for the best. After days of waiting, the seller charges a much higher price. You go back and forth several times and finally agree on a price. But, when you look up, you are considerably over the budgeted amount. He can still afford the house, but he won’t have as much cushion as he hoped.

This happens all the time and is how many people get into trouble. This is not to say that this will make you lose your home, but it can add more stress to your budget. Take my advice. Just look at properties in your price range. Don’t even think about looking for higher priced homes. You run the risk of falling in love. If you don’t find anything, wait a couple of weeks and search again. This is the best way to stay within your budget.