Can I really afford to pay a premium?

Can I really afford to pay a premium?

You should never pay a premium for an investment property but if you’re buying a home that you’re going to live in for the next ten to twenty years and it’s a nine or more out of 10 for you then it’s ok to add a little extra to try to secure the property.  But there’s a word of warning about finance when heading down this track.

The problem comes if you don’t realise you’re paying more than the property is worth because you’ve become emotionally attached to what you see is your new home.  This naivety is very likely to come back to bite you. 

Just because you’re willing to pay a premium for a property doesn’t mean the bank will put the same value on it and you could find yourself short come finance time.

Even though you may have your finance pre-approved, the bank will only lend up to the value they put on the property not necessarily what you have paid.

From my experience most banks will show some flexibility here however if you go well over their valuation then you’ll have to come up with the difference out of your own pocket.

So it’s essential that you know the property’s current market value and understand just how much above that you are prepared to pay and if you can afford it should the banks valuer not feel the same way about the home as you do.