Buying a house? Here’s how to determine your ideal price range
A lot of excitement goes into searching for one’s dream home. There are so many factors to consider: from the ideal location in your chosen city or neighborhood, to a house’s featured amenities, architectural style, and everything in between.
A major consideration to keep in mind, however, is how much you can afford to spend on a home purchase. Do you know the right price range of homes you should be looking at?
Why determining your ideal price range matters
There should be no doubt that house-shopping within your most reasonable price range is the way to go. Having a clear idea of how much you can spend leads to a faster and more efficient home search. You’ll have more grounded expectations on the types of houses you can target and you won’t waste any time or energy looking at properties that are priced above your capacity to pay.
Expert tips on figuring out the right price range for your home purchase
- Get a mortgage pre-approval
For an accurate estimate of your purchasing power that you can also use as official proof when you make offers to sellers, head over to local lending companies in your area and apply for a mortgage pre-approval. Through this process, lenders will review your financial records to determine how much you are qualified to borrow, as well as the ideal terms that will apply to your mortgage.
In addition to receiving a base figure for your house-hunting price range, you will also get an official letter from your lender that you can use to convince home sellers of your capacity to pay.
- Use the 28/36 rule
The 28/36 rule is a common bit of advice shared by reputable financial advisers, which means that it’s a tried and tested strategy for budgeting for a home purchase.
Simply put, the 28/36 rule advises you to limit your monthly household spending to no more than 28% of your gross monthly income. Meanwhile, your total debt should amount to just 36% of your monthly income at most.
This means your monthly mortgage payments, credit card dues, car loan payments, and other outstanding debt should all fall within the 36% allocation.
- Be flexible your price point ranges
While determining a price range means narrowing your scope toward realistic targets, avoid setting a range so narrow that it severely limits your options.
If you can afford to buy a house worth $300,000 at most, don’t make that number the upper limit of your price range. There may be listings in your local housing market priced at $305,000, for instance, that may still be worth making an offer for. A skilled and experienced local agent may be able to negotiate toward a final sale price that falls within your range.
- Do your research on list price and actual sales price ratios
With help from your agent, look at home sales in your area over the past three to six months. Compare the original asking prices of sold homes to their final prices. You can adjust your price range according to the result, especially if final prices are consistently lower than list prices.
- “Read” the market
The amount of activity in your local housing market can also influence the appropriate price range for your home search. If you are setting your sights in an active and competitive market, raising your range will work better.
Ask your agent whether your area is currently a buyer’s market or a seller’s market. You’ll have a better chance of negotiating toward a lower, more favorable final price in a buyer’s market, where there are more houses available than active buyers.
- Dig deeper into sellers’ motivations
In some cases, you can work certain property listings into your price range if you understand the current owners’ primary reasons for selling. Highly motivated sellers, such as those who need to relocate immediately due to work, major changes in personal life, or simply an immediate need for cash, are more willing to offer discounts on their houses for sale.
The challenge is finding out about these motivations. Listing agents are not allowed to disclose their client’s reasons, but having a buyer’s agent who is savvy enough to understand local home seller trends may also be able to sense your seller’s unique motivations.
If you are getting ready to buy a house in Texas, Berkshire Hathaway HomeServices (BHHS) Caliber Realty is the team that will speed up the process for you. Call 979.694.8844 or email sales(at)bhhscaliber(dotted)com to learn more about the services that our team of reputable agents can offer.