Homebuyer Outlook

Buying a home is often an exercise in patience and commitment. At some point in the search or bidding war, you may ask yourself, “How badly do I really want this?”

 

For some recent home buyers, the answer has been, “badly enough to make concessions” at one end, and “badly enough to blow my budget” at the other, according to data from new NerdWallet surveys conducted online by The Harris Poll in January.

In the 2019 NerdWallet Home Buyer Report, we look closely at how much recent American home buyers compromised to make their homeownership dreams a reality and where they could have saved money.

 

We also examine how those recovering from foreclosure feel about owning again, and how many Americans will be shopping for a new home in the coming years.

 

But first, some increasing optimism: 42% of Americans say they feel better this year about their overall ability to purchase a home compared with a year ago. When we asked the same question in December 2017, just 28% shared that optimistic sentiment.

 

Further, 44% say the current economic and political climate would make them more likely to purchase a home in the coming year if they were in the market. In the 2018 Home Buyer Report, just 35% said the same.

 

KEY FINDINGS

• 45% of Americans who’ve purchased a home in the past five years offered more than asking the price before having their offer accepted.

• 25% of American homeowners say they no longer felt financially secure after purchasing their current home — and 34% of first-time homebuyers identified with this sentiment.

• American homebuyers could save $776 million in a single year by comparing mortgage rates among lenders before applying, according to NerdWallet’s analysis. That’s over $400 per borrower in the first year of a 30-year mortgage.

• 36% of Americans plan to buy a home in the next five years, compared with 32% when we asked in December 2017. Of them, 24% say they’ll be making the purchase within the next 12 months.

• 13% of Americans have lost a home due to a financial event such as foreclosure in the past 10 years, 61% have not bought a home since, and 20% of those who haven’t repurchased say they never plan to again.

• 62% of Americans believe you must put at least 20% down in order to purchase a home. The truth: 32% of current U.S. homeowners put 5% or less down on their home, according to census data.

 

RECENT MARKET DROVE CONCESSIONS AND BLOWN BUDGETS

In a seller’s market, homebuyers are forced to make compromises in how they shop for a home and what’s on their wish list. Recently, with affordable homes in short supply, buyers have done exactly that.

 

Six in 10 (60%) Americans who bought a home in the past five years had to make more than one offer before closing, and 37% had to make three or more, according to the survey. This included the home they ended up buying and any others they competed for. On average, these buyers put three offers in before closing.

 

Homebuyer takeaway: You’re not guaranteed the house you want, in the neighborhood you prefer, at a price below your target budget. Go into house shopping with a realistic vision. Get real about your must-haves and what you can be flexible about. And know the market; talk with your agent (or several, if you haven’t chosen one yet) to know just how tight things are in your area.

 

FIRST-TIME HOME BUYERS FIND LESS WIGGLE ROOM

For newcomers to the housing market, buying in the past five years was even harder. More than half of recent first-time homebuyers (56%) offered more than asking the price before having their offer accepted, compared with 35% who recently bought their second or subsequent home. For 15% of first-time homebuyers, that offer was higher than they were comfortable with, compared with 8% of those who bought their second or subsequent home.

 

Homebuyer takeaway: Set a firm budget, and don’t base it on the mortgage you qualify for. Lenders may offer you a bigger mortgage than you need, or one where the monthly payments push your expenses to their breaking point.

 

Once you’ve determined your budget, don’t go above it without taking a serious timeout to determine whether there are other places you can cut spending. An expensive home can easily turn into long-term regret.

 

FOR ALL BUYERS, RATE SHOPPING IS KEY

List prices and bidding wars are one thing, but many home buyers are missing out on an often overlooked savings opportunity in homebuying: shopping for the lowest interest rate on their mortgage.

 

Half (50%) of home buyers look at only one lender before applying for their mortgage, according to NerdWallet’s analysis of the National Survey of Mortgage Originations. Comparing lenders can help borrowers save on mortgage interest.

 

Assuming a 30-year, fixed-rate $260,000 mortgage, a buyer could save $430 in interest in the first year alone by comparing five lenders before applying.

 

Homebuyer takeaway: Comparing mortgage lenders isn’t difficult, but it does take a little time. You can use a mortgage comparison tool to look at rates side-by-side and compare how much you’ll save on monthly payments and over the life of your loan.

 

OWNERS PREVIOUSLY BURNED CONSIDER BUYING AGAIN

Some of those eyeing the market could be former owners who lost their homes in the foreclosure crisis. Foreclosures peaked in 2011 during the crisis, according to data from CoreLogic. One in 5 (20%) of those who haven’t repurchased say they plan on never buying a home again, but 58% say they plan to buy again in the next five years.

 

Homebuyer takeaway: Being cautious is savvy, for all buyers. If you’ve previously lost a home due to foreclosure or other similar events, you know what’s at stake.

 

Half (50%) of home buyers look at only one lender before applying for their mortgage, according to NerdWallet’s analysis of the National Survey of Mortgage Originations. Comparing lenders can help borrowers save on mortgage interest.

 

Take your time when researching your loan options, your budget and the homes available to you. Also, have at least a few months of living expenses set aside in an emergency fund — if an unexpected event like a job loss hits, you’ll want to be prepared.

 

MISCONCEPTIONS REMAIN ABOUT DOWN PAYMENTS

For many, a 20% down payment may be out of reach. And the truth is, home buyers, don’t need that much.

 

Homebuyer takeaway: A 20% down payment is a nice goal; the more you can put down, the less you have to borrow and pay interest on. But there are many ways to put less than 20% down on a home.

 

When considering your down payment options, remember: A smaller down payment may get you into homeownership sooner, but the more you’re able to squirrel away before buying, the less of a pinch that monthly payment will be.

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