63% of millennial home buyers have regrets – usually because they missed this one crucial step

The vast majority of millennials – 84% – believe that buying a home remains a core component of the American Dream. According to a recent Bankrate survey, millennials prioritize homeownership well over other major life events and goals, such as:

  • Getting married (50%)
  • Having children (44%)
  • Owning an automobile (58%)
  • Having a successful career (63%)
  • Achieving retirement goals (68%)

In other words, for many people born between 1981 and 1996, buying a home isn’t just another routine step in life — it’s a fundamental value.This mindset is backed up by data, which shows a significant uptick in millennial homeownership in recent years. While the most recent figures from the U.S. Census Bureau indicate that ownership rates remain highest among householders ages 65 and over (78.6%), buyers 37 years and younger make up the largest share of home buyers (36%).

All of this is to say that millennials are already well on their way to becoming the driving force in the residential real estate market, a role they’ll likely continue to play for decades to come.

But for nearly two-thirds of GenY’ers, home ownership has come with one big regret – not fully understanding or preparing for unexpected maintenance and “other hidden costs” such as property taxes, insurance, and closing costs.

Now, I would argue that those last three costs are not hidden. Lenders are legally required to provide you with a Loan Estimate document within three days of the loan application and a Closing Disclosure document three days before you close on your home. Both the Loan Estimate and the Closing Disclosure are multi-page forms that provide final details about the mortgage loan you have selected. They include the loan terms, your projected monthly payments (including taxes and insurance), and how much you will pay in fees and other costs to get your mortgage (closing costs).

The three-day window allows you time to compare your final terms and costs to those in the Loan Estimate that you previously received from the lender. The three days also gives you time to ask your lender any questions before you go to the closing table. But a reputable, local company like ours ensures these costs are understood much earlier in the process, before an offer is even made on a home. More on that in a minute.

That brings us to the No. 1 cause of regret – the unexpected cost of maintaining a home. When buyers consider trading in the apartment life for home ownership, they too often compare rent to house payment. They think, “Well, I pay $1,800 per month now, so I can afford an $1,800 house payment.”

But experts say buyers should plan to spend 1 to 3 percent of the home’s purchase price on annual maintenance. So if the home is priced at $200,000, your maintenance budget should be at least $2,000 each year. Therefore, a renter paying $1,800 now should consider budgeting for a $1,600 monthly mortgage payment and putting the rest into savings each month. When a water heater rusts out or the AC stops working in July, regret can quickly sink in if you don’t take this one crucial step.

Here are a few more ways to “regret-proof” your first home-buying experience:

  • Talk with a lender first
    First-time home buyers typically hire a Realtor first, and then they choose a lender. I would argue that this approach is fine if your agent insists on you getting pre-approved before you shop, but who among us doesn’t indulge in a little online fantasy home shopping before getting the financing square? Plus, your pre-approval amount does not always take into account your personal lifestyle, comfort level, etc. Instead, I always suggest that buyers talk with a lender first. This is when you have the chance to take advantage of an expert to help you establish your ideal monthly payment before you look at even one house.
  • Don’t get excited about that BIG pre-approval number
    On that note, most people can technically “afford” much more house than they should comfortably spend. You don’t want to be house poor, which is the term used to describe people who can afford their monthly payment, but they can’t afford to furnish the home, go out to eat, join a gym, travel, buy gifts for friends and family, etc. Instead, follow the next piece of advice and “back in” to your home price.
  • “Back in” to your ideal home budget
    Before I worked at Fountain Mortgage, I was a client. My husband and I worked with Mike Miles, one of the owners, to establish the “all-in” payment that we were comfortable with. Mike factored in our monthly income, debts, and credit score to establish and lock our interest rate. Then he took into account estimated property taxes, insurance, and PMI. From there, he could back into our preferred payment and give us … drum roll … THE NUMBER. This is the maximum home price we could shop. Having this knowledge removed a huge amount of stress from the process. We stayed in our budget, found a home we loved, and knew that our payment would not be a surprise.

Did you know that Fountain Mortgage specializes in first-time homebuyers? In fact, about half of the people on our staff are millennials. They say that helping their peers buy their first homes is their favorite part of their jobs. Even if you’re a few years out from purchasing, we’d be happy to visit with you. We want you to be the best educated renter possible – and the most regret-proof homebuyer when the time is right.

April 23, 2019

Charity Ohlund

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Fountain Mortgage 2023 — NMLS ID 1138268

M Squared Financial LLC
DBA Fountain Mortgage
7501 Mission Road, Suite 200
Prairie Village, KS 66208

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