Homeownership is a goal for many Americans, but a new report from personal financial marketplace Credible finds many are financially unprepared for this milestone.
The nationwide survey found 63% of American homeowners say they underestimated the true cost of homeownership, including 73% of first-time home buyers.
- 44% weren’t financially prepared for the true cost of homeownership when they bought their home (52% of first-time home buyers)
- 84% don’t believe first-time homebuyers receive enough education about the true cost of owning a home
- Homeowners pay nearly $5,000 more per year than expected on homeownership costs
“One way to manage costs is to put aside money for maintenance and repairs every year,” says Barry Bridges, personal loans editor at Credible. “One commonly cited rule of thumb is to budget 1% to 4% of your home's value on an annual basis. You can lean toward 1% if your home is newer and closer to 4% if it has a few decades of wear and tear.”
High mortgage rates and rising home prices are two of the primary factors making it more difficult for Americans to afford a home. At the same time, housing expenses comprise more than just a monthly mortgage payment, and prospective buyers don’t always know what to expect when budgeting for homeownership.
A Credible survey asked more than 1,000 homeowners how their housing costs compared to their budget expectations. Most respondents underestimated the true cost of homeownership, and the majority thought first-time homebuyers don’t get enough education about homeownership costs.
Sixty-three percent of Americans underestimated the true cost of owning a home, including 73% of first-time homebuyers. And they’re paying a median of $400 more per month than expected.
The disconnect between expectations and true costs was especially common among younger generations. Gen Z homeowners were more likely than other respondents to say they underestimated costs (75%), compared with 68% of millennials, 58% of Gen X, and 53% of baby boomers.
Women (65%) were more likely than men (61%) to underestimate the true cost of homeownership.
Commonly overlooked expenses
When budgeting for homeownership, one common pitfall is to focus on the monthly mortgage payment and ignore other property expenses, such as:
- Property taxes
- Homeowner’s insurance, flood insurance, and earthquake coverage
- HOA fees
- Utility bills
- Maintenance and repairs
In fact, 37% of respondents said they currently live with an inconvenience because a home repair is too expensive. That share increases to 42% for first-time home buyers.
Take a look at the full report for more insights, including a list of the higher-than-expected homeowner costs (repairs and renovations top the list!) The nationwide survey.
