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Should I buy at the top of my budget?

Five facts seasoned Realtors ask clients to consider?

"I talk to my buyers to get to know what their financial comfort level is," says Benefield. "I tell them upfront that it doesn’t matter what you’re approved for, but what you’re comfortable paying monthly..."

So, there’s this couple shopping for a house in, let’s say, Naples (Florida or Italy, it doesn’t matter). And they are standing in front of a neo-classical that is clearly their dream home when they ask the sales agent if they should buy this property, since they’re sure it’s at the top of their budget.

"Well, it’s actually above your budget," chirps the agent, smiling coyly at the camera. "But I know you’re just going to love it! And the owner is really motivated, so I think I can get you a real bargain!"

As the theme music flows and the credits roll, we learn the couple did buy the house at below list, but for $45,000 above their budget. And since those credits are rolling over images of the whole family in their neo-classical pool, this is supposedly a Happy Ending For All.

But such stories don’t seem like a happy ending to Alabama-based Realtors like Colleen Black of Keller Williams and Kimberly Benefield, broker/owner of Sweet HOMElife. These seasoned agents say "reality" television shows don’t portray how real Alabama Realtors counsel their clients. When asked, "Should I buy at the top of my budget?" both Benefield and Black caution their buyers to consider how their home purchases might fit into their overall goals. And they never encourage buyers to look at over-budget homes.

"I talk to my buyers to get to know what their financial comfort level is," says Benefield. "I tell them upfront that it doesn’t matter what you’re approved for, but what you’re comfortable paying monthly. I want to help them find a house they love, but I also want them to have the money they need to pursue their lifestyle – to keep dating their spouse, traveling, or whatever is important to them. It doesn’t matter what the lender approves them for. I don’t want to sell them a struggle."

Black says most buyers qualify for more than they should realistically spend for long-term peace of mind.

"Before I practiced real estate I was in the financial services business," says Black. "My goal was to help keep people out of debt and live within their means. And I still counsel clients to only buy what they can afford. But the answer to the question of whether buyers should buy at the top of their budget is very specific to the person, what their goals are, and how long they are going to live in the house."

That’s why buyers should expect their agents to ask about goals, including how and how long they hope to live in their future house. Buyers who are frequently transferred may have different goals than buyers seeking long-term investments.

When asked about shopping at the top of a budget, here are five facts Black, Benefield and their colleagues suggest clients consider:

1. A pre-approval letter merely indicates the amount a lender believes you can repay. It doesn’t indicate you can repay that loan and do other important things.

2. There are ownership costs beyond the monthly mortgage. Your budget should include room for routine and long-term maintenance, furnishings, lawn care, HOA fees and other expenses.

3. Location will determine what – and how much -- you can buy. You may not have to max out your budget if you shop in a different location.

4. The days of routinely pricing homes with negotiating room are over. Alabama Realtors now encourage listings at fair market value, raising likelihoods of competitive bids and lowering likelihoods of deep discounts.

5. The days of skyrocketing pay raises and property appreciation are also over. Don’t make purchases based on boom-era assumptions.

So those are the five facts. But Black and Benefield say there is still no one-size-fits-all answer to whether an individual buyer should shop or buy at a top-budget level. Though it often makes good financial sense to buy well below a lender’s pre-approval amount, it can sometimes make good financial sense for well-informed buyers with solid financial plans to stretch budgets to meet their long-term housing goals.

In the end, these experts say it’s okay to be entertained by TV "reality" shows. But they also hope Alabamians will understand that real-life real estate is very different, and that good local Realtors can help clients explore customized answers to complicated buying questions.

This blog is made possible by the Greater Alabama Multiple Listing Service (GreaterAlabamaMLS.com), a subsidiary corporation of BAR that was founded in 1958 and is recognized as Alabama’s trusted real estate authority.

Jean McLean >>> Twitter