The majority of millennial home buyers say they have regrets, new data shows. According to a recent poll of 1,500 homeowners from Bankrate, up to 63% of millennial home buyers say they have regrets about buying their current house.
Part of the reason for buyer’s remorse, Bankrate says, is because there are hidden costs associated with buying and owning a home. Only 35% of baby boomers said they experienced remorse compared to 50% of Generation X.
Because millennials (ages 23 to 38) are new to the real estate market compared to Gen X (ages 39 to 54) and baby boomers (ages 55 to 73), they’re less likely to know about these hidden fees and the responsibilities that go into maintaining a house. These hidden burdens, according to the poll, are some of the top millennial homeowner frustrations.
Daryl Fairweather, the chief economist at Redfin, says it’s important to know what you can really afford not just to buy a home but also to own a home. To get the full picture, new home buyers need to do more than compare their rent payments with a potential mortgage payment.
“Do a full check of all finances,” said Fairweather to CNBC. “A lot of hidden fees come with owning a home that you might not consider immediately.”
These hidden costs include property taxes and closing costs, which can be 2% to 5% of the home price. For millennials who are already struggling to save up enough for a down payment on a house, these unexpected costs could take a serious blow to their finances.
Real estate mogul Barbara Corcoran said she had been caught unaware by hidden housing costs early on, too. “When I bought my first home I showed up at the table to close without the closing costs,” she said. “Thank God I was able to borrow it from the very nice seller or I couldn’t have closed on the place.”
But it isn’t just the closing costs that can take first-time home buyers by surprise. It’s also the unexpected costs of upkeep and repairs. It’s recommended that home buyers plan to spend 1% to 3% of the home’s purchase price on annual maintenance.
The average price of a house right now in the U.S. is $294,800. That means you ought to have an annual maintenance budget of at least $2,984.
For millennials who had to take on a second job to save up for a down payment, those additional costs could stretch them too thin. This could be a major blow for those who held off their wedding to save up for a house (the average wedding cost is $35,329).
“When payment for things like mortgages and student loans, millennials don’t have much money to save for the hidden costs of owning a home,” said Fairweather.
Chief economist of the National Association of Realtors recommends starting with a starter home to avoid regrets in the long run. Later, he says, homeowners can trade up instead of trying to find their dream home on the first try.
Unfortunately, because of the nation’s low housing supply, there’s a shortage of starter homes available. Many millennial homeowners end up paying more for a house than they budget for because there aren’t any available in their price range.
“Millennials have seen their rents go up year after year, and may think that buying a home is more affordable, but the fact of the matter is housing has become unaffordable across the board,” said Fairweather.
That said, it may be best for first-time buyers not only to save up for a down payment for buying a home but also for those unexpected fees.
When repairs and maintenance are needed, be sure to make smart decisions to avoid spending more money. For instance, cedar siding can last up to 25 years and a soaker ought to be placed 18 inches away from the house to avoid foundation problems.
“It’s imperative for millennial buyers to speak at length with their agent about what they are looking for in a home and surrounding community,” said Fairweather.