Whether you’re scraping together every dollar at your disposal to buy your first home or plunking down a huge down payment on your 4th or 5th house, eventually most of us have to make a decision based on a combination of budget, tastes, and location/neighborhood preference. It often comes down to whether you want a smaller, less updated house in a trendy neighborhood that’s in demand, or if you want the biggest and best house your money can buy; even if that means sacrificing commute times and perhaps living in a neighborhood you find less attractive.
Whats the correct way to think about it? There is no one right answer. Personally, I think its less stressful and is generally better for your lifestyle and long-term happiness to pick an area where you want to live, then seriously evaluate whether your budget will allow you to purchase a home there. This doesn’t mean “Oh hey! Out of the 145 sales in the past year this one house sold within our budget 6 months ago. We’ll just wait on that deal to come up again”. At this point, you are searching for a unicorn and setting yourself up for heartache and frustration.
Realistic, in my opinion, means that when you look at homes for sale that meet your needs and must haves in the area, you find that some are at or above your budget, and also discover some that are for sale or have sold below your budget. Buying at the rock bottom of the price range in the area can often mean that you are buying a house that either has a defect (is it in a flood zone?) or needs serious renovation (which is often going to blow out your budget anyway).
If your first choice neighborhood isn’t realistic, then simply pick your next favorite location, evaluate feasibility, rinse and repeat if necessary.
You can always get a bigger and better house by compromising on location. That is a perfectly valid choice to make depending on your personal priorities. I find that honestly answering these three questions will lead you to a balanced decision that puts your investment in the best long-term position possible:
What is my budget?
What are the absolute must-haves I need from this house?
What is the most desirable area, neighborhood, and school district with housing inventory within my budget that satisfies my must-have requirements and fits my lifestyle?