Don't Regret Buying a Home: Navigating Today's Housing Market

A couple look regretful as they sit at their dining room table and look at financial paperwork.

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Homeownership has often been viewed as a milestone, part of the American dream.

Times are changing. A recent Bankrate survey found about 45% of homeowners have regrets about their homes.

With a tough housing market, inflation, high interest rates and record amounts of debt, a majority of Americans' wallets are being pushed to the brink.

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When you're making one of the biggest purchases of your life, you want to be certain. Knowing how to measure the home's affordability, assessing your needs and proper planning are key.

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Two big challenges when buying a home

The two biggest challenges all homebuyers will face, especially first-time buyers, are low inventory and affordability. In many areas, there's such a shortage of homes that when one hits the market, multiple offers are often submitted within the first couple of days.

As a result, prospective buyers face bidding wars, causing home prices to skyrocket. This, coupled with high mortgage rates, has made it challenging to afford a home or even qualify for a loan.

If you're planning to buy a home in the next couple of years, you need to focus on your savings.

The most frequent source of buyer's remorse tends to be underestimating the full cost of homeownership.

Many buyers focus solely on their monthly mortgage payment and overlook recurring expenses such as property taxes, insurance, HOA fees, maintenance and repairs, even the cost of moving.

Annual homeowning expenses can be a shock

According to Bankrate, the average homeowner spends more than $18,000 a year on expenses outside their mortgage. When those costs hit all at once, it can come as quite a shock.

Historically, experts advised that monthly housing expenses should be about 28% to 32% of your income. Today, a more realistic approach is to allocate about 40% to 45% of your gross monthly income toward total housing costs.

In today's market, it's more likely that somewhere from 35% to 40% of your gross income will go strictly toward the actual home payment. Depending on the age of the home, an additional 1% to 5% should be dedicated to maintenance and repairs.

When it comes to affordability, one of the best ways homebuyers can protect themselves and their budgets is to build an emergency fund. A good general rule is to have three to six months' worth of expenses saved in case of an emergency.

A mistake to avoid

One mistake people often make is using the entirety of their savings as a down payment, leaving them with nothing when something unexpected happens.

In most cases, homebuyers are better off putting a lesser amount down on the home — keeping their savings for what might come up in the future.

Once you get comfortable with your budget and have at least three to six months of emergency expenses saved, you can start paying extra on the mortgage if your goal is to pay it off before retirement.

As for the actual purchase and affordability of the home, one of the clearest signs that a buyer may be overextending is when their total housing costs exceed 45% to 50% of their gross monthly income.

Other warning signs

Dipping into emergency savings to cover closing costs, postponing retirement contributions or using credit cards for routine expenses post-purchase are other warning signs.

For most homeowners, refinancing their mortgage is one way to lower monthly payments, but be cautious. Not knowing exactly how much your payment might decrease or when you'll be able to refinance can make it hard to plan, save and budget.

If you're relying on future refinancing, income increases or bonus pay to make ends meet, you're crossing into the dangerous territory of living outside your means.

Being honest about your monthly cash flow and long-term goals is another key to preventing buyer's remorse.

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Another common regret homeowners face stems from rushing the process or compromising too much.

In competitive markets, buyers might waive inspections, stretch their budgets or settle for a home that doesn't truly fit their needs just to "win" a bid.

Failing to plan for future life changes, such as growing families, job relocations or aging parents, can also lead to regret.

These situations can quickly make a home feel too small, too far away or no longer the right fit.

How to reduce the risk

Buying with foresight reduces the risk of having to sell prematurely or take on costly renovations. While it's impossible to predict the future, the more you align your home choice with future plans, the more confident and stable your investment becomes.

Whether you're a first-time buyer, are looking to upsize or downsize or need to move closer to work, it's critical to stay within your budget and always have a plan for emergencies and future expenses.

Who you hire to help you matters

Equip yourself with the best team possible and hire full-time professionals as your real estate agent and loan officer.

Before deciding who to hire, do your research. Having a well-known and respected Realtor or loan officer can sometimes help your offer jump to the front of the line.

They'll also ensure you are taking advantage of the best programs available to you while coaching you on ways to secure the best terms possible.

Homeownership has proven to be one of the most effective paths to long-term financial success. Treating your home like an investment can significantly minimize any risks or regrets.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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With over 20 years of lending expertise, Darren Tooley brings a wealth of knowledge and a client-first mindset to every home financing journey. As a consistent top-producing loan officer, Darren is known for his trusted financial guidance, commitment to transparency and second-to-none customer service. Throughout his career, Darren has been recognized by respected industry publications like Hour Magazine and The Scotsman Guide, while contributing his industry knowledge and expertise for articles that have been featured in CBS News, U.S. News, Forbes, Fortune Magazine, Yahoo Finance and Bankrate, among others.