Blog posted On August 15, 2018
Compared to previous generations, millennials have been slower to become homeowners. Factors like high student debt, sluggish wage growth, and other residuals from the Great Recession have impacted their ability to buy homes. Of the millennials who are homeowners (approximately 4 in 10), 68% have expressed buyer’s remorse, with the top concern being spending too much money on the down payment.
Putting 20% down on a new home can help eliminate the cost of mortgage insurance and possibly secure a lower interest rate. However, a 20% down payment is not required. According to the National Association of Realtors, 60% of all first-time home buyers put down approximately 6% or less. Even if you have saved enough for a 20% down payment, consider the additional costs before sinking your entire savings into the down payment.
Most first-time home buyers know they will be required to make a down payment on their future home, but many underestimate the closing costs. Closing costs, on average, are equal to about 2% to 5% of the purchase price. Closing costs vary from transaction to transaction, but some of the fees a home purchase may incur are the application fee, appraisal, attorney fee, closing or escrow fee, credit report, home inspection, other inspections, origination fee, property tax, prepaid interest, recording fee, title company fee, and more. All closing costs and fees will be explained by your mortgage loan officer and included on the loan estimate and the closing disclosure, so you understand where the cost is coming from and why it is needed. Sometimes, the buyer can negotiate with the seller to have them pay the associated closing costs.
Owning a home also has other costs associated with maintenance, repair, and sometimes homeowner’s association dues. When it comes to home maintenance, a popular rule of thumb is to save 1% of the home’s purchase price each year for repairs. The amount of work your new home will need depends on the age of the home and the weather in the area. If you are buying a home that needs expensive repair right away, consider renovation financing that combines these costs with the mortgage payment. In some planned communities, homeowners are required to join and pay dues to the homeowner’s association. These dues will be reinvested in the neighborhood toward landscaping, decorations, and common areas like community centers.
According to the survey profiled by CNBC, 4 in 10 millennials felt they made poor financial choices when it came to purchasing their home and 1 in 5 said they were frustrated by damages they found after moving in. Buying a home is a big investment that should be approached carefully. Meeting with a loan officer early can help you plan ahead and make the right choice when buying a home.