It’s no secret home prices aren’t cheap. They may not be expensive either, depending on how you look at it, but they certainly aren’t cheap. It doesn’t take an economist to figure that out.
At the same time, mortgage rates are marching toward new all-time lows and inventory remains tight, which is keeping demand red-hot for prospective home buyers.
That means sacrifices must be made, but just what are those sacrifices? Well, fortunately Redfin did the legwork for us here.
Let’s take a look at these compromises to determine if it makes sense to be in this potentially frothy real estate market right now.
Paying More than Expected
This is perhaps always the case in real estate, or in anything that requires you to pay money in exchange for an item. We always pay more than we anticipated, either for emotional reasons or simply because we underestimated the cost.
The problem with a home is that paying more isn’t always an option. You could be maxed out at a certain price thanks to lender limits on DTI, or you could lack the necessary down payment at higher price points.
Whatever the case may be, buyers are being asked to up their ask if they want to land their dream home, or even their right now home.
In fact, home buyers are apparently making multiple offers on several homes at once in order to get one accepted. Sounds like things are getting a little out of control…
Buying in a Different Hood
The next biggest compromise is searching for a home in an entirely different neighborhood. This can happen even if the real estate market isn’t on fire, as it is now, but it should give you pause.
Of course, if you started your search with unreasonable filters, you may want to adjust your expectations and search in a realistic area. Just be sure not to forego the basics like a good school district and a low crime area. You may also want to avoid buying a home near these many things…
Purchasing a Small Home
We’ve all heard of that tiny home trend where you live in what looks like a trailer. It’s some kind of hipster millennial thing that maybe went too far.
Even if you don’t take it to those lengths, buying a smaller home because you can’t afford a larger one might not be a smart move. It might simply mean it’s not the best time for you to buy.
This is the third most common compromise buyers are making, but it can be a big mistake, no pun intended.
If you plan to start a family, you could easily outgrow your pad in a hurry, especially if you have twins. Heck, even if you don’t, it’s always nice to have one more bedroom, or one extra bathroom.
Keep in mind that if you buy the smaller home for right now, you might be looking for a new larger home before you know it, when prices are even higher.
Looking in the Burbs
The next most common compromise is buying further out of town. Redfin refers to it as buying in a “less walkable or transit-friendly community,” aka the suburbs.
It seems everyone wants to live in the city these days, but if you are planning/starting a family, the burbs could actually be a great choice.
The schools tend to be a lot better in the less “cool” parts of town, and that will mean a lot more to you once you have your fun running around the city. Parking is also a good thing…
At the same time, there is a fine line here – if the home you can actually afford or get your offer accepted on is an hour commute each way, you might want to pump the brakes on the purchase.
Settling for a C+ School
The final compromise is purchasing a home in a lower-rated school district. I just touched on the importance of schools, and this decision will come back to bite you in several ways whether you have kids or not.
If you do have kids, you might have to pony up for private school, which could easily outweigh the costs of buying in a nicer part of town, especially if you have multiple children.
Even if you don’t have kids, when it comes time to sell, there’s a good chance the buyer will care about the school district and that can affect your bottom line. In short, the things that you think about now will be the same things future buyers of your home consider.
The takeaway here is that there will always be compromises when it comes to buying a home, but if you find the compromises really beginning to stack up, you might want to keep on renting.