Once the idea to buy a home takes root and you have a budget (usually from a lender(which is a bad idea-more on this later)) most home shoppers generally begin the process of comparison shopping. Much as we would approach buying a car or a television, we start learning about what is available, the features and amenities we want and how much we can get for our money. Essentially, finding the very best house we can find for the money we have to work with.
Of course, this is a great skill and an important part of the home search process. It’s also kind of fun so plenty of us start here before even getting the budget. However, shopping for a home is vastly different than comparison shopping for a consumer product. In fact, there is the potential for a really bad outcome if you treat a home purchase like that of a consumer product. Sadly, this is what most people do: they buy the nicest home they can find in the area they like with the budget they have been told they can afford.
I know, you’re wondering what’s the problem with that?
OK, here goes… let’s see if I can demonstrate how something seemingly sensible is in fact, way off target.
My issue with comparison shopping and finding the best home you can buy with the money you’ve been told you can afford is twofold…
First, most people don’t take the time to figure out what ‘best’ means for them, their family’s and their lives. So by default, ‘best’ becomes the prettiest home in the area they like the best… and not much more over-thought than that. This is an inadequate assessment criteria for the largest purchase you will make in your lives… until your next home. That’s like choosing a life partner because they’re really attractive… how does that usually turn out? Home flippers capitalize on this consumer centric behavior by filling their fix and flips with pretty, cool and fun amenities that suck an ill prepared buyer in. What does the ‘best’ home look like? What was your family’s criteria for determining what made one house better than another? The vast majority of home buyers have very superficial criteria for what makes one home better than another. Seriously, it’s time we learn how to buy a house…
My 2nd issue is the ‘affordability’ topic. A lender, bank or mortgage Broker has no idea what you can afford. How much you can ‘afford’ is highly personal and should be based on your life goals, dreams and ambitions. Unless you’ve discussed how many kids you want, your ambition to start a business, your retirement plans and any of dozens of other financial factors, a lender really can’t say what is a reasonable budget for you. Nor do they have any training for that kind of financial planning. They can (and do) however, have the ability to tell you what you are currently eligible to borrow based on today’s lending standards. That is hardy the same discussion. I can assure you that the ultimate lending institution (investment bank and or investor) does not care if you are house poor, can’t afford more children, never start that business or even retire confidently. They measure risk and gain for this loan individually and combined with other loans to determine the most profitable amount to lend with an acceptable level of default (of course, you’ll pay the mortgage insurance… just sayin’).
This is a big topic, and one I care deeply about. I have seen people buy both well and poorly. I myself have done it both right and wrong and can tell you with certainty, you really don’t want to get this one wrong.
A home purchase is more like choosing a partner than a car. It will impact your lives in a multitude of ways supporting or interfering with the the life you really hope to lead.
Want to know more about finding the right home for your life? Stay tuned…