Many people fall in love with a home that they must have, no matter the cost. In a seller’s market, it is quite common for prospective buyers to find themselves in a bidding war over a house. Many times, the winning buyer gives a lot more than the asking price for the home.
For example, if you are willing to give the seller his inflated selling price and then throw in $500 of closing costs, you may be wasting a bit of your money. By overpaying for the home, you will have to have a higher down payment, more in closing costs and thousands of dollars more in interest over the years. You could be looking at an additional $10,000 over the next ten years.
If you are purchasing at an inflated price, your equity will build slower than normal. If you have to sell the home before the value has significantly appreciated, you may find that you have to bring money to the closing. You overpaid and will pay even more later.
If you are tempted just to pay whatever it takes to get the house, keep in mind that you don’t make money selling a home, you make it by buying wisely. When you overpay and overspend on closing costs, you will later find a lower equity causes you fewer selling and repurchasing options.
Before you overpay, you need to step back and ask yourself why you are tempted to overpay on this home. Make sure that you would own the home long enough to make up for the overpayment. If you know that you are overpaying, but plan to recoup your losses, then the purchase may be right for you.
But don’t simply overpay because you don’t want to lose out on the home. Don’t let your emotions get in the way, or let competition get the worst of you. Remember there are more homes out there. The world doesn’t stop at that door.