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One of the pillars of the American dream is owning a home, but a majority of Americans harbor serious misconceptions about nearly every aspect of homeownership.
A new survey from Real Estate Witch asked 1,000 Americans about how to buy a home, how much it costs, and how to qualify for a mortgage. The results show that most Americans know shockingly little about one of the most expensive purchases they’ll ever make.
Home buyers expect an emotional and logistical nightmare
More than half of Americans have a serious fear of missing out when it comes to buying a home. This fear, however, is largely based on misconceptions, according to Real Estate Witch.
The average age of a first-time home buyer is 36, but nearly three-quarters of Americans think homeowners purchase their first house at a younger age. This suggests many buyers may unnecessarily rush their home purchase or overextend themselves financially based on false assumptions about the competition.
Once buyers start their home search, most of them quickly realize they don’t know as much about the market as they thought. An overwhelming 83% of homeowners report that they were surprised by some aspect of buying a home.
Many were particularly surprised by the cost of buying a home, with the amount they expected to pay falling short of reality. About 65% of buyers had to adjust their budget, and 63% had to adjust their priorities.
Although mortgage rate increases have somewhat cooled the housing market, several years of booming home values have left prices near all-time highs. Although 76% of non-homeowners are concerned about rising home values, 60% continue to underestimate the median home price.
Only 14% of respondents know the median home price is between $400,000 and $499,999. As a result, 34% of buyers paid more for their home than they initially planned.
“Without knowing what budget to look for, what one can be approved for, and total costs involved prior to looking [for a home] is a big mistake and a waste of time for many buyers,” said Ryan Radecki, a real estate agent at Highgarden Real Estate in Indianapolis. “I think now more than ever, having a buyer consultation [with a lender] is imperative prior to looking at homes and will only help the buyer in the long run.”
Many Americans underestimate the ongoing costs of owning a home, too. The average homeowner spends $13,150 a year on home-related expenses, such as repairs and maintenance, but 48% of Americans believe annual homeownership expenses are less than that amount.
With so many Americans seriously underestimating how much it costs to buy and own a home, they’ll likely face unpleasant financial shocks in the future.
Buying a home is hard, but not as hard as Americans think
The difficulties of buying a home have been well documented, causing many Americans to imagine that the hurdles of homeownership are higher than they actually are.
For example, mortgage lenders recommend putting down 20% when buying a home, but 62% of Americans believe it’s a requirement, and 21% believe they must put down more than 20%.
“First-time home buyers think they need to put down 20%,” said Isadora Sarto, an agent based in Boston. “Many also believe that [private mortgage insurance] sticks with them for the life of the loan, when in reality, they can remove PMI after they achieve 80/20 in most cases.”
In some circumstances, buyers can get a conventional loan with a down payment as low as 3%, and there are some government-backed mortgages that require zero money down.
Homeowners confirm that many prospective buyers overestimate the importance of the down payment. Although 23% of buyers think saving for a down payment will be the most challenging aspect of buying a home, only 8% of homeowners say it actually is.
Americans are even less informed about mortgage rates and the loan process. Only 12% of respondents know that the current rate for a 30-year mortgage is between 6% and 7%. About 43% think the rate is higher, with a quarter believing it’s higher than 10% — a level rates haven’t hit since 1990.
Almost two-thirds of Americans wrongly assume buyers should find their dream home before getting pre-approved for a mortgage, and 32% think they need a credit score of at least 700 to buy a home. In reality, buyers can qualify for a conventional loan with a credit score of only 620.
Complicating matters is the fact that 43% of non-homeowners believe they’re knowledgeable about the mortgage process, but they’re likely proceeding under many false assumptions.
Americans misunderstand the role of the real estate agent
In addition to miscalculating how much it costs to buy and own a home, buyers also don’t know how much they’ll have to pay their real estate agent.
Fifty-one percent of respondents underestimate how much they’ll pay in real estate commission when they sell their home, and only a minuscule 11% know that agents typically earn a commission equal to 6% of the final sale price.
Although sellers usually pay commission for the buying and listing agents, 62% of buyers believe they pay their agent’s commission — leading 65% of buyers to believe they can save money by not working with an agent.
However, buyers who forgo an agent to save money only do themselves a disservice at the negotiating table. Real estate agents negotiate on buyers’ behalf, but nearly two-thirds of non-homeowners think they have to negotiate directly with the home seller themselves.
To counter rampant misinformation about home buying and the housing market, some real estate agents give their clients online crash courses on the basics.
“I schedule first-time home buyer Zoom seminars,” Sarto said. “I do the same for first-time home sellers.”
This article was produced by Real Estate Witch and syndicated by Wealth of Geeks.
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