Millennials Have More Home Buying Regrets
Living the Dream
Homeownership is one of the classic measures of "the American Dream." According to a recent Bank of the West Millennial Study, over half of respondents (58%) say they've either attained the American Dream or that the American Dream is still attainable. A similar percentage (59%) says that owning a home is a top ingredient in the American Dream – surpassing retiring comfortably (56%), being debt-free (53%), and even having children (41%).
Millennials show approximately the same numbers in all of these categories, but they break sharply from other generations in one aspect. Over two-thirds of millennials (68%) say they have regrets about their home purchase – almost twice as many as baby boomers and thirteen percentage points above members of Generation X.
Perhaps millennials are expecting too much out of homeownership, ignoring the old axiom – "The secret to happiness is low expectations." The study suggests rose-colored glasses may play a role, along with a lack of preparation and education about home buying and home maintenance.
Not What We Thought It Would Be
Millennials cited four primary reasons for their regrets – higher-than-expected maintenance costs, unexpected damage discovered after the purchase, too low of a down payment, and discovering that the space doesn't work as well as expected. Responses were almost evenly divided at 20% among the four categories.
Underestimating maintenance costs was common among the generations, but the other regrets suggest poor preparation going into a home purchase. You can avoid regret by using available resources and tapping on the experience of others to set up a home buying plan.
Know What You Want
It's easy to fall in love with a home at first sight without thinking about the long-term ramifications. The pool and/or hot tub may be a great feature, but do you know the time and cost involved in maintaining it? How is that beautiful ornamental staircase going to work when you're hauling things up and down it all the time – and how can you childproof it when the time comes?
Before you begin your home search, think about what you want in a home now and what you are likely to need in the future. Separate them into the must-have and the nice-to have categories. Seek advice from others who have recently purchased homes – they are likely to have eye-opening advice for you that you wouldn't have considered.
It's a seller's market right now, and it's likely to be one for some time. You're likely to have to compromise on some point to find an affordable home in this competitive market. Rank the features you are most willing to give up in order to get the best combination of features that you can afford.
Know What You Can Afford
Affordability is key. The rules aren't as freewheeling as they used to be before the housing crisis, but some banks are still willing to lend you more money than you should borrow. What's your debt-to-income (DTI) ratio, and how is that likely to change with future commitments like the costs associated with children?
Consider your overall credit picture as well. A small change in credit score can translate into a quarter or half of a percentage point difference in interest rates – which can have huge ramifications on your collective interest payments. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
Next, consider running costs. Most people include property taxes and utilities, but regular maintenance is often underestimated. Maintenance costs typically run around 1% of the purchase price of a home. Include these costs in your budget and make sure that any home you purchase is properly inspected to avoid nasty economic surprises.
Create a mock budget that reflects life after your home purchase. With a realistic budget in hand, how much home can you afford? If you don't like the answer, set a plan for a future home purchase. How will you improve your credit score to lower your interest rate offer? Where can you cut back on expenses to save more for a down payment?
The Bank of the West study found that 29% of current millennial homeowners dipped into retirement funds to finance their home purchase, and 19% of prospective millennial homeowners plan to do so. Resist the urge to raid your retirement accounts. You're likely to trade a homeowner regret now for a retirement regret later.
The Takeaway
The secret to happiness may really be low expectations – but we prefer to think the secret is realistic expectations, proper planning, and the discipline to execute your plans. It's not a catchy phrase, but it's a more fulfilling life philosophy.
With respect to homeownership, that means giving serious thought to your housing needs and your ability to afford them. Resist the temptation to stretch yourself so thin that you can't afford to do anything else but sit in your beautiful new home – or fix your beautiful new home when things start to break and become not so beautiful anymore.
There are plenty of research resources available to you, both on the Internet and through personal contacts. Use them. Be fully educated and prepared when you enter your home search, and you'll be happier when the search is complete.
MoneyTips is happy to help you get free mortgage and refinance quotes from top lenders.
Photo ©iStockphoto.com/AntonioGuillem