What To Do If You Bought Too Much House

Buying a house is one of the biggest achievements you’ll ever experience, but if you let the excitement dictate your purchasing choices, you may end up like one of the millions of Americans who feel they’re now “house poor.” Buying a home is one of the most expensive and sentimental purchases for most people. Over 36% of homebuyers overpay for houses, often due to emotional or rushed decisions. First time home buyers are especially vulnerable to overpaying due to inexperience and lack of knowledge about the home buying process. If you fall into this category, you’re most likely wondering what to do if you bought too much house. Odigo Real Estate Club helps homeowners like you conquer this situation, so keep reading to learn the best advice for managing the expense of an excessive home mortgage.

Introduction to the Problem

Navigating the housing market can be overwhelming, especially for first-time homebuyers eager to find their dream home. With fluctuating home prices and fierce competition, it’s easy to get swept up in the excitement and overlook important details. Emotional factors can cloud judgment and lead to bidding wars that result in overpaying. Real estate agents play a crucial role in helping buyers understand the local real estate market, but even with professional guidance, it’s possible to fall into the trap of overpaying for a house.

One of the biggest challenges buyers face is determining whether the listing price or asking price truly reflects the value of the property. In a hot market, sellers may set a high list price, hoping to spark a bidding war or capitalize on rising demand. Online valuation tools provide estimates that help assess if a home is overpriced. However, an overpriced house can lead to financial strain down the road, especially when factoring in a hefty down payment, high closing costs, and the risk of costly repairs that may not be immediately apparent.

There are several signs that a house may be overpriced: it sits on the market longer than comparable properties in the same neighborhood, the price is significantly higher than similar homes in the area, or the seller is unwilling to negotiate. The home has been on the market for a long time without receiving offers. Buyers should also be wary of homes that require extensive repairs or updates, as these can quickly add to the overall cost of the purchase.

To avoid overpaying for a house, it’s essential to do thorough research, compare recent sales of similar properties, and consult with a knowledgeable real estate agent who understands the local market. Comparative market analysis (CMA) can help determine appropriate price ranges for a home. By staying alert to the warning signs and understanding the true value of a property, homebuyers can make informed decisions and protect themselves from the long-term consequences of overpaying in today’s real estate market.

Determine Your Financial Situation

The first step in dealing with your difficult situation is determining the overall state of your finances. First-time homebuyers are more likely to overpay for a house due to inexperience and emotional factors, making it even more important to assess your financial standing. You can establish if you bought a home you can’t afford using the following five criteria:

1. You have less than 5% equity (ownership) in your home.
2. You’re paying at least 40% of your monthly income on your mortgage.
3. You can’t afford the maintenance or upkeep of the home, making its value plummet.
4. You have rooms you rarely use or rooms with no furniture.
5. You can’t pay rising property taxes.

When evaluating your financial situation, remember that other factors, such as local amenities and community features, should also be considered, as they can impact both your expenses and the long-term value of your home.

Additionally, hidden maintenance or foundational problems can exacerbate the financial strain of owning an unaffordable home. These issues can be difficult to detect during the initial purchase process but may lead to significant repair costs over time, further complicating the financial burden.

In addition, make a detailed examination of the following.

Income

Your income is the most obvious consideration when determining your financial situation. If you work a traditional job, you likely don’t have much control over your income, but consider asking for a raise. You can also look for alternate forms of income, but you may find other areas of your financial situation that you can more easily change. Homebuyers can easily get caught up in their emotions during the home buying process, which can lead to financial missteps, so it’s important to approach your finances with a clear and rational mindset. Most people find it challenging to adjust their finances after buying a home that stretches their budget.

Expenses

Reviewing how much you spend on both essential and discretionary items is key to managing your budget. Expenses are one of the easiest areas of your budget to reduce, as they likely consist of both essential and discretionary spending. If you’re managing an excessive home purchase, consider the following questions for reducing your expenses: Buyers should negotiate for terms that meet the seller's needs, which can sometimes lead to a lower purchase price.

• Do you have any categories in your budget where you consistently overspend?
• What conveniences can you reduce or eliminate, such as eating out or entertainment, in the short term to have more long-term security?
• Can you switch insurance providers, grocery stores, internet providers, or some other service to obtain a more affordable rate?

If you can reduce your discretionary spending even by $100 a month, it can go a long way toward helping you afford your high mortgage.

Debt

If you have other debts besides your mortgage, you might find a way to reduce how much you're paying on them. Consider consolidating your consumer debt, renegotiating the terms of a car loan, or applying for deferment on your student loans until you can better secure your financial situation.

Assets

If you own additional assets, such as stocks, a retirement fund, or an extra car, consider selling or liquidating them to pay off your mortgage more quickly. Always consult with a financial advisor before deciding which assets would help you afford your home and which should remain long-term investments.

Look Into Refinancing

If you’re dealing with an oversized home purchase, consider refinancing your mortgage. Refinancing is the process of switching out your old mortgage for a new one, and if you time it right, it can mean significantly lower interest rates. You should consult with your mortgage lender to explore the best refinancing options for your situation. The higher your credit score, the better chance you have of receiving lower interest rates, which can save you thousands of dollars every year.

Consider Loan Modification

Loan modification is a less extreme option for adjusting your mortgage compared to refinancing. Before committing to this option, consider that it can lower your credit score. You should only use this option in more dire circumstances, such as if you require a principal reduction on your mortgage (which refinancing can’t accomplish), you’re behind on mortgage payments, or you’re at risk of foreclosure. In some cases, a loan modification may require a new appraisal to assess your home's current value.

Seek Extra Income

Are you wondering what to do if you bought too much house? Consider finding an opportunity for extra income to help you afford your payments. Options for increasing your income include:

• Asking for a raise
• Finding a second job part-time
• Freelancing or consulting
• Investing in high-yield, short-term opportunities
• Finding passive income streams

Rent Part of Your Property

If you’re dealing with excessive home ownership, consider whether you can rent out part of your property to help pay the mortgage. If you have “too much house,” you likely have more land or rooms than you need. For example, you could rent out a bedroom to a college student, or your entire basement to a newly married couple trying to get on their feet. Buyers should make dispassionate decisions to avoid developing 'dream house syndrome.' Before renting out part of your property, you should consider a home based inspection to ensure the space is safe and suitable for tenants. Many homebuyers regret overpaying for a house out of convenience or emotional attachment, but renting out unused space can help mitigate the financial burden.

If your home purchase includes a lot of land, consider renting it out to campers or people with RVs so you can still have the privacy of your home but have an extra stream of income.

Explore Downgrading Options

If you’re coping with house overbuying, you may find downgrading a valuable option. Using this option, you’ll sell your house for one you can afford, which usually means a less appealing location or a smaller property. Moving to a new home with a lower mortgage can help restore your financial stability. While you’ll likely feel sad leaving behind the house you love, you’ll also feel some relief because you’re reclaiming your long-term financial security rather than wondering how you’ll pay your mortgage each month.

Request a Professional Consultation

If you're adjusting to an oversized property purchase, you don't have to make all the decisions by yourself. You should seek advice and guidance from various professionals who can guide you through the situation. Consider seeking out the following experts:

• A financial advisor can give you the best all-around advice on steps you can take to secure your financial situation.
• A real estate agent can help you determine how easily you could downgrade your living situation.
• A mortgage agent could give you advice on adjusting your loan or refinancing.

Attempt Negotiation

If you’ve determined your other debts are a major obstacle to paying your mortgage, consider negotiating with your other creditors to reduce your monthly payments. The best candidates for renegotiation include credit card debt and high-interest loans, but your financial advisor can help you determine other areas where you could free up some money by lowering monthly payments. If you are unable to keep up with your mortgage payments, you might also consider a short sale as an option to avoid foreclosure.

Move Past Your Mistake

If you're addressing buying too much house, one of the most important things you can do is learn from the lesson and never make the mistake again. With help, you'll overcome this challenge, but if you make the mistake a second time, you'll find it more difficult to conquer than the first time. Everyone makes poor decisions occasionally, and using them as a learning experience can create long-term stability.

Contact Odigo Real Estate Club for Help

Are you wondering what to do if you bought too much house? When you need the best real estate advice, reach out to Odigo Real Estate Club. For more personalized strategies, talk with one of our experienced agents. 

Whether you need real estate advice or want to list your home, call (425) 409 3823 or schedule a free consultation with us today.

‍