3 Ways to Avoid Overpaying for a House

If you pay more than a house is worth, you could come to regret it.

When you're shopping for a home, you'll want to do more than just find a place you'll be happy to live in with your loved ones. You also want to make sure you're making a sound financial decision.

Homes can help build wealth, but you'll likely have to go into debt by taking out a large mortgage to pay for it. That means you need to find a home you'll be delighted to call your own that's also a good value.

Unfortunately, that can be easier said than done. Buying a home is an emotional purchase, and it's easy to get carried away and go over budget. So if you decide that now is a good time to buy a home, keep the following three tips in mind as you look at properties. They may help to ensure you don't end up overpaying for a home just because you really like it.

1. Avoid falling in love

When you visit homes, it's easy to start picturing yourself living in a place that you like the looks of. In fact, you may even find that you discover the "perfect" home that you're absolutely in love with.

Try to avoid letting this happen. Remember, you didn't know that this "perfect" home existed, and it just happened to be on the market at the time when you started shopping for one. It's very likely not the only house that you'll end up being happy in. Try to keep a level head and keep in mind that every property you look at is just one of many.

In today's hot market, bidding wars are not unlikely. By making sure you don't get your heart set on a home, you can avoid getting into a situation where you're tempted to pay more than the home's value.

2. Check comparable sales

The fair market value of a property is generally determined by what buyers, as a group, are willing to pay for it. As a result, you can assess what a home is worth by looking at what similar properties have recently sold for.

It's easy to look up past listings online and see what price buyers paid for them. Find other homes in a similar location that share most of the features of the home you're interested in to see what they sold for. Use this data to determine a fair price for the property you are interested in.

3. Have a backup

If you find only one home that you really like, you're at the mercy of the seller and may be prompted to offer more than you want to pay -- or even more than the property is worth.

But if there are several different homes you're interested in, landing any one particular house isn't nearly as important. You can easily walk away from a property if a seller is asking too much and isn't willing to accept a reasonable offer based on what comparable homes are selling for.

By making sure you avoid getting too attached to a home, finding several properties you'll be happy with, and committing to offer only what a property is worth, you should hopefully end up in a house that works well for you at a price that makes sense. That's the best of both worlds, since your new house will meet your emotional and financial needs.