🏠 Are Americans educated about home buying? 🏠
About 1 in 3 non-homeowners (31%) say they’re knowledgeable about the home-buying process, but 62% wrongly think it’s required to put down 20% on a home, and 66% mistakenly believe buyers pay their agent’s commission fees.
Home Price Expectations | Maintenance Costs Expectations | Down Payment Myths | Home-Buying Difficulties | Who Pays Realtor Fees? | Home-Buying Surprises | Credit Score Confusion | Mortgage Rate Misconceptions | Muddling Through the Mortgage Process | Finding a Lender
Owning a home remains a key part of the American dream, but rising prices and interest rates have put homeownership out of reach for many Americans — making them want it all the more.
Homeownership has become somewhat of a national obsession, with more than half of Americans (53%) looking at Zillow listings at least once a week and 29% looking at least once a day during the home-search process.
Although Americans may feel “behind” in life if they don’t own a home, a majority overestimate the success of their peers. The average age of a first-time home buyer is actually 36, but 73% of Americans think it’s much younger, according to a survey of 1,000 Americans conducted by Real Estate Witch.
Americans may be obsessed with homeownership, but they actually know very little about the home-buying process. In fact, 83% of homeowners say they were surprised by at least some aspect of buying a home.
As they learned more about the real estate market, 63% of home buyers had to adjust their priorities, and 65% had to adjust their budget.
Despite their personal experience, many homeowners remain baffled by the home-buying process. With the average American only purchasing a home every eight years, it’s easy to forget specifics or be confused by misinformation.
For example, homeowners (46%) are just as likely as non-homeowners (44%) to believe that sellers always pay closing costs for buyers. About 60% of homeowners, compared to 62% of non-homeowners, also wrongly assume the seller is required to complete all repairs that the buyer requests after an inspection.
Home buying is certainly a complicated and confusing process, and misinformation can make it seem even more difficult to Americans who have never owned a home.
Non-homeowners are overly anxious, however, with 45% saying they are worried about buying the wrong home when just 20% of current homeowners report feeling buyer’s remorse. About 78% of non-homeowners also think buying a home will be stressful, but just 47% of homeowners say it actually is.
Keep reading to find out what else Americans get wrong about buying a home.
🔎 Housing Misinformation Statistics
- 83% of homeowners were surprised by parts of the home-buying process.
- The average age of a first-time home buyer is 36, but 73% of Americans think it’s much younger.
- 73% of Americans don’t think homes are affordable right now, yet 60% underestimate the median home price. Just 14% know the median price ranges between $400,000 and $499,999.
- Many homeowners misjudged how much it would cost to purchase a home, and 1 in 3 (34%) paid more for their home than they initially planned.
- In addition to their mortgage, homeowners spend about $13,150 annually on home-related expenses — such as utilities, maintenance, and improvements — but 48% of Americans believe annual homeownership expenses are less than that amount.
- Mortgage lenders recommend putting down 20% on a home, but 62% of Americans believe it is a requirement.
- More than 1 in 5 Americans (21%) say home buyers actually need to put down more than 20%.
- 23% of non-homeowners think saving for a down payment will be the most challenging part of buying a home, but only 8% of homeowners say it actually is.
- Real estate agents generally communicate with the seller, but 2 in 3 non-homeowners (65%) mistakenly believe it’s the buyer’s responsibility.
- The seller usually pays agent commission, but 62% of Americans think buyers pay their agent’s commission.
- This misunderstanding could be why 65% of Americans wrongly think buyers can save money by not working with a real estate agent.
- More than half of Americans (51%) underestimate how much they’ll pay in Realtor commission.
- Only 11% of Americans know that agents earn 6% of the final sale price.
- Just 12% of Americans know the current rate for a 30-year mortgage hovers between 6% and 7%.
- 43% of Americans think the interest rate is higher than 7%, with 1 in 4 saying it’s more than 10%. The last time rates reached 10% was more than 30 years ago in 1990.
- 43% of non-homeowners think they are knowledgeable about the mortgage process, but nearly two-thirds (64%) wrongly assume buyers should find the home they want to purchase before getting pre-approved.
- About one-third of Americans (32%) say a credit score of at least 700 is necessary to purchase a home, but in reality, buyers can qualify for a conventional loan with a score of 620.
6 in 10 Americans Underestimate the Median Home Sale Price
Although 76% of non-homeowners are concerned about rising home values, 60% continue to underestimate the median home price.
Of those who minimize the price, 23% think the median home costs between $200,000 and $299,999, while another 23% think it costs between $300,000 and $399,999.
In reality, the median U.S. home price is $436,8000, but just 14% of Americans know the cost ranges between $400,000 and $499,999.
Americans who have never owned a home are 15% more likely than homeowners to guess the correct range. While homeowners may disregard the real estate market once they purchase their home, Americans who have yet to achieve homeownership are more likely to research the market and look at listings, making them more knowledgeable about current home prices.
Many home buyers, however, still misjudge how much it costs to purchase a home. More than 1 in 3 homeowners (34%) paid more for their home than they initially planned. That should be concerning for the 74% of non-homeowners who are worried about affording a home in today’s market.
Spending more than expected on a home purchase can lead to serious financial consequences. Nearly 1 in 4 Americans (24%) who have owned a home but no longer do say it’s because their mortgage was too expensive. Another 1 in 6 (16%) say their home was so costly that they were foreclosed.
Nearly Half of Americans Miscalculate Home Maintenance Costs
Americans not only underestimate the cost of purchasing a home, they also misjudge how much they’ll spend to maintain it.
In addition to their mortgage, homeowners spend about $13,150 annually on home-related expenses, such as utilities, maintenance, and improvements. Yet nearly half of Americans (48%) don’t believe they’ll spend that much, with about 1 in 4 (29%) expecting to pay less than $5,000 in additional costs.
Just 14% of Americans know the true cost of homeownership. Surprisingly, homeowners are no more likely than non-homeowners to know the amount they’ll pay in annual home expenses, suggesting that many homeowners fail to monitor their spending or keep a budget.
Having the home inspected is one way to save money on maintenance costs by ensuring the home is in good working condition before closing. But 33% of homeowners say an inspection isn’t necessary if you know what to look for.
Most buyers, however, don’t have the time, tools, or training to complete a thorough inspection. When something breaks, a home warranty will usually cover only a portion of the expense or none at all. That may come as a shock to the 37% of Americans who mistakenly believe a home warranty will cover the full price of repairs.
The additional costs of owning a home are turning some Americans away from homeownership. Among former homeowners, 1 in 5 (20%) say they no longer own property because maintenance costs were too high, while 1 in 11 (9%) say they weren’t informed about the costs of owning a home before buying.
It’s no wonder 1 in 5 former homeowners (20%) prefer renting and relegating maintenance costs to a landlord.
1 in 5 Americans Think Purchasing a Home Requires a Down Payment of More Than 20%
Mortgage lenders typically recommend a down payment of 20%, but many will accept a lower percentage. Differing standards may cause confusion among home buyers, especially those who are purchasing a home for the first time.
About half of homeowners (56%) and three-fourths of non-homeowners (72%) believe a 20% down payment is required to buy a home.
More than 1 in 5 Americans (21%) say home buyers actually need to put down more than 20%. That includes 6% of Americans who say a 30% down payment is required to purchase a home, with non-homeowners (8%) twice as likely as current homeowners (4%) to believe this myth.
In reality, no minimum down payment is required, especially because the standard varies by loan type. Loans backed by the Federal Housing Administration require as little as 3.5% down, while loans backed by the U.S. Department of Agriculture and Veterans Affairs require no money down.
Purchasing a home with a small down payment makes homeownership more accessible, but there are considerable disadvantages. Buyers who don’t put down 20% typically pay a higher interest rate and additional fees because the lender assumes more risk.
One such fee is private mortgage insurance, but 85% of Americans are baffled by this charge. Nearly 1 in 4 Americans (23%) believe PMI protects home buyers if they can’t pay their mortgage. But the exact opposite is true. PMI protects the lender if buyers stop making payments.
Homeowners (17%) are more likely than non-homeowners (11%) to correctly identify private mortgage insurance, but a majority still don’t know the definition. This lack of knowledge is concerning, considering many homeowners put down less than 20% and have probably paid PMI at some point since purchasing their home.
Although 72% of non-homeowners believe a 20% down payment is required, 76% don’t think they could afford it — potentially deterring them from even trying to purchase a home.
The good news is first-time home buyers may qualify for down payment assistance programs designed by government agencies and private organizations to make buying a home more affordable.
More than 1 in 4 current homeowners (27%) considered using a down payment assistance program, and of those, 52% actually did.
Non-Homeowners Are 3x More Likely to View Saving for a Down Payment as the Most Difficult Part of Home Buying
About 23% of non-homeowners think saving for a down payment will be the most challenging part of buying a home, but just 8% of current homeowners say it actually was. That makes non-homeowners 3x more likely than homeowners to view saving for a down payment as the most difficult part of buying a home.
The disparity is likely the result of differing experiences. Non-homeowners may inflate the difficulty of saving for a down payment because it’s the only part of the home-buying process with which they have personal experience.
Meanwhile, homeowners have a personal understanding of the other challenges that may arise during the home-buying process. They may also have a financial advantage when buying another home because they can use the profit from their home sale as their down payment — eliminating years of saving.
About 1 in 16 Americans (6%) who have never owned a home believe negotiating with sellers will be the most difficult part of home buying.
This belief may stem from the fact that nearly 2 in 3 non-homeowners (65%) think they are generally responsible for communicating with the seller.
This task actually falls to the buyer’s real estate agent, and nearly 1 in 4 homeowners (24%) were surprised by how little interaction they had with the seller during the buying process.
Communicating with the seller isn’t the only misguided assumption home buyers have about negotiating. Nearly half of Americans (48%) believe the highest offer is always the best — even though cash offers and waived contingencies can be just as appealing to sellers.
Three-fourths of Americans (75%) also believe buyers should offer lower than their budgeted price so they can negotiate. However, there are good reasons to offer full price. Doing so could gain seller cooperation and increase the attractiveness of an offer in a competitive market.
With so many buyers believing these real estate myths, it’s clear they could use an agent with professional negotiating experience in their corner during the home-buying process.
Half of Americans Underestimate a Real Estate Agent’s Commission Rate
Finding a real estate agent may be easy, but understanding how much an agent charges in commission is more difficult.
More than half of Americans (51%) underestimate how much they’ll pay in Realtor fees — which usually cost 6% of a home’s sale price and are split evenly between the buyer’s and seller’s agents.
Just 11% of Americans know the average commission rate is 6%, with homeowners (14%) 2x more likely than non-homeowners (7%) to know the correct percentage.
Although the seller typically covers commission costs for both the buying and listing agent, 62% of Americans wrongly assume buyers pay commission fees — with non-homeowners 12% more likely to believe this myth.
This misguided assumption could be why 65% of Americans think buyers can save money by not working with a real estate agent.
Sellers who don’t have to pay a buyer’s agent commission may be open to lowering their asking price, but that’s not likely when demand for homes still outpaces supply. In all likelihood, buyers who choose to forgo an agent’s expertise may end up overpaying for their home.
85% of Homeowners Were Surprised by the Home-Buying Process
Without extensive knowledge of the real estate market, it’s understandable that home buying would take Americans by surprise.
For 30% of homeowners, the most surprising part of home buying is how expensive closing costs are.
Typically, buyers pay 3% to 6% of the final sale price in closing costs, but about two-thirds of Americans (64%) don’t know the correct percentage. Of those, nearly half (31%) underestimate how much they’ll have to pay in closing costs.
Behind closing costs, home buyers are most surprised by:
- How fast homes sold (29%)
- What makes up closing costs (27%)
- The length of the process (26%)
- The price they paid for their home (25%)
- How little interaction they had with the seller (24%)
- Competition among buyers (23%)
- Securing a mortgage (23%)
Nearly 1 in 6 homeowners (17%) were surprised by the number of offers they had to make before one was accepted.
Non-homeowners seem to anticipate an offer process that is much more difficult than it actually is — indicating a lack of awareness in real estate market trends. Rising interest rates have shrunk the buyer pool, but many Americans still foresee fierce competition.
Approximately 53% of non-homeowners expect to make more than three offers on a home, when in reality, only 24% of homeowners had to make that many before one was accepted.
After their offer was accepted, 39% of homeowners say they were surprised by how long the home-buying process took.
2 in 3 Americans Think Home Buyers Need ‘Very Good’ or ‘Excellent’ Credit to Quality for a Loan
Nearly two-thirds of Americans (66%) assume home buyers need a high credit score to qualify for a loan, with non-homeowners 14% more likely than homeowners to believe this myth.
Although one-third of Americans (32%) think a credit score of at least 700 is necessary to purchase a home, most buyers can qualify for a conventional loan with a score of just 620.
Even though lenders recommend a credit score of 620, there’s no minimum standard that will automatically disqualify buyers from securing a mortgage. Buyers with subpar credit still have options.
Under certain circumstances, loans backed by the Federal Housing Administration will accept buyers with a credit score as low as 500. What’s more, loans backed by the U.S. Department of Agriculture and the U.S. Department of Veterans Affairs have no minimum credit requirement — although lenders will set their own standards.
However, buyers with low credit may struggle to find a lender who’s willing to approve a mortgage, and their loan terms won’t be ideal. It’s possible to improve a credit score over time, but 52% of Americans believe they can raise it quickly before buying a home.
Improving a credit score can actually take years because one of the main components is how consistently borrowers have paid their bills over time. Borrowers who have fallen behind on their payments should not only catch up, they should also begin paying their bills on time. The longer they do so, the more beneficial it will be for their score.
1 in 4 Americans Think the Current Mortgage Rate Is 10% or Higher
Although 43% of non-homeowners think they know how the mortgage process works, our research shows they’re sorely uneducated about financing a home purchase.
Just 12% of Americans know the current interest rate for a 30-year mortgage hovers between 6% and 7%.
Interestingly, non-homeowners, who are most likely affected by rising interest rates, are the least knowledgeable about them. Only 8% know the current mortgage rate, compared to 15% of current homeowners.
Non-homeowners may not know the mortgage rate, but nearly three-fourths (73%) are concerned about its current rise. Some Americans are so concerned about rising mortgage rates, they’ve wildly overestimated how high they’ve climbed.
About 43% of Americans think the interest rate is higher than 7%, and 1 in 4 think it’s more than 10%. The last time the mortgage rate reached 10% was more than 30 years ago in 1990.
Non-homeowners are 31% more likely than current homeowners to assume the rate is higher than it actually is. In fact, 1 in 8 Americans who have never owned a home (13%) think the rate is more than 15% — making them 3x more likely than current homeowners to say so.
Overestimating the interest rate may produce an unnecessary barrier to homeownership, but it can be equally detrimental to underestimate it. Americans who do so often fail to account for hundreds of dollars they’ll have to add to their monthly mortgage payment.
Roughly 45% of Americans think the mortgage rate is lower than 6%, causing more than 1 in 4 homeowners (27%) to say their mortgage rate is higher than expected.
Half of Americans Don’t Know When Home Buyers Should Get Pre-Approved for a Mortgage
When mortgage rates will drop is anyone’s guess, but 77% of Americans think rates will continue to rise over the next year. Americans’ expectations are surprisingly aligned with experts’ predictions, but in other mortgage-related matters, Americans remain woefully ignorant.
Mortgage rates vary nearly every day, but almost half of Americans (47%) mistakenly believe their interest rate is locked in once they’re pre-approved. In truth, mortgage rates aren’t set until buyers are officially approved for a loan.
Getting pre-approved for a mortgage is still a good idea, even if it doesn’t secure a mortgage rate.
A pre-approval letter informs buyers how much a lender is willing to loan them so they don’t waste time looking for homes outside their budget. Offers from pre-approved buyers are also more attractive to sellers because there’s less risk of the deal falling through because of financing problems.
That’s why it’s important for buyers to get pre-approved for a mortgage before looking at homes. But many Americans believe the opposite.
About two-thirds of non-homeowners (64%) and half of homeowners (55%) think buyers should first find the home they want to purchase and then get pre-approved.
Americans may hesitate to get pre-approved for a mortgage because nearly 1 in 3 (30%) think it will hurt their credit score. Although pre-approval does require a hard inquiry into an applicant’s credit history, any dip that causes will likely be small and temporary.
1 in 5 Homeowners Say Qualifying for a Mortgage Took Longer Than Expected
Getting pre-approved for a mortgage can expedite the loan application process, but 1 in 5 homeowners (20%) say it still took longer than expected to be approved for a mortgage after they were pre-approved.
Borrowers who use a different lender than the one who got them pre-approved may experience a lengthier mortgage process, but that’s not a problem for a majority of buyers. More than half (54%) closed with the first lender who got them pre-qualified or pre-approved.
About one-fourth of homeowners (27%) started their search for a lender online, but of those, fewer than half (43%) actually closed with a lender they found on the internet.
Most commonly, buyers used a lender recommended by their real estate agent (23%).
An agent’s recommendation holds tremendous sway among buyers. Of those who first asked their agent for lender options, more than half (54%) closed with their agent’s recommendation. Of those who first looked for lenders online, 29% were persuaded to use their agent’s suggestion instead.
About 90% of Americans who used their Realtor’s recommendation say their agent endorsed their preferred lender at least once during the mortgage process. Agents who had the highest percentage of clients (22%) close with their preferred lender weren’t pushy and recommended their lender less often than once per month.
No matter where they found their lender, 65% of buyers are satisfied with their choice, and 66% of buyers trust their lender.
That trust is likely the result of close communication, with 62% of buyers speaking to their loan officer at least once a week and 22% speaking at least once a day during the buying process.
Communicating with clients is important, but lenders should also take advantage of opportunities to communicate with other parties in the transaction. If borrowers make an offer on a home, 30% of loan officers will proactively call the selling agent to provide assurance that the buyer can finance the purchase.
The proprietary data featured in this study comes from an online survey commissioned by Real Estate Witch. One thousand Americans were surveyed June 21-22, 2023. Each respondent answered up to 25 questions related to their experience with homeownership and knowledge of the home-buying process.
About Real Estate Witch
You shouldn’t need a crystal ball or magical powers to understand real estate. Since 2016, Real Estate Witch has demystified real estate through in-depth guides, honest company reviews, and data-driven research. In 2020, Real Estate Witch was acquired by Clever Real Estate, a free agent-matching service that has helped consumers save more than $160 million on realtor fees. Real Estate Witch’s research has been featured in CNBC, Yahoo! Finance, Chicago Tribune, Black Enterprise, and more.
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What are the most common real estate misconceptions?
About one-third of non-homeowners (31%) say they're knowledgeable about the home-buying process, but 62% wrongly think it's required to put down 20% on a home, and 66% mistakenly believe buyers pay their agent's commission fees. Learn more.
Is it normal to have buyer's remorse after buying a house?
About 45% of non-homeowners say they are worried about buying the wrong home, but just 20% of current homeowners report feeling buyer's remorse after their purchase. Learn more.
Will I regret buying a house on a busy street?
One-fourth of non-homeowners (25%) would buy a home on a busy street, but 13% of homeowners regret living on a busy street. Learn more.
Why is buying a home so stressful?
Finding the right home within budget amid a housing shortage that increases buyer competition can make buying a home stressful. About 78% of non-homeowners think buying a home will be stressful, but just 47% of homeowners say it actually is. Learn more.