Potential first-time homebuyers are vastly overestimating the costs of homeownership, according to a recent survey by NeighborWorks America, a nonprofit support network for homeowners. Some survey respondents overestimated the costs of basic home repairs and maintenance by several thousand dollars.
The survey reports the actual costs of home maintenance and upkeep to be anywhere between $2,000 and $6,000 a year nationwide. Home maintenance costs include:
- repairs;
- landscaping;
- property improvements;
- utilities;
- pest control; and
- regional necessities, such as air conditioning or heating costs.
Causes for homebuyers’ overestimations
Where do these inaccurate estimates come from?
Lack of financial education may be causing potential homeowners to shy away from what they view as an impossible investment. California is one of few states that omit financial education almost entirely for their residents – leading to a high rate of financial illiteracy among California’s potential homeowners. Apparently, one semester of high school Economics does not a financially savvy citizen make.
This lack of education on how the economy works extends to mortgage rates, down payment assistance programs and household finances for first-time homebuyers, knowledge that reduces uncertainty otherwise surrounding a decision to purchase a home. Real estate agents need to fill in the knowledge gap with clients by discussing:
- the actual costs of a home purchase transaction [See RPI Form 311];
- mortgage rates and mortgage insurance premiums (MIP) coupled with the down payment amount;
- tax breaks for first-time homeowners [See RPI Form 320-4];
- down payment assistance programs; and
- actual costs of home maintenance and upkeep.
Editor’s note – first tuesday provides a wide range of forms agents use to clarify these costs with their clients, such as a mortgage shopping worksheet. Visit our Forms Download page for more on free forms. [See RPI Form 312]
Also, check out our articles on the new financial well-being assessment tool, homebuyer tax benefits and FARM letters with other information your buyers need to know.
Despite first-time homebuyers’ educational shortcomings, they are correct in assuming California homeownership costs are higher than most other states – the California price premium. California’s coastal area properties and urban homes, for example, are more expensive to purchase and maintain.
However, information is critical for first-time homebuyers to become comfortable with the idea of owning a home. Buyers who overestimate costs out of ignorance are susceptible to being taken advantage of by mortgage lenders and accepting more onerous financing terms– confirming the buyer’s misinformed assumptions and costing them more money than necessary.
Real estate agents, with their unique position as gatekeepers to entry into the real estate market, can combat these overestimations by counseling first-time homebuyers. An agent’s ability to define the necessary costs of homeownership and guide buyers through the process of selecting a mortgage makes them a valuable educator.
The public’s dependence on a sales transaction agent is an opportunity to positively affect the housing market by setting realistic expectations for enduring homeownership. Otherwise, misinformed homebuyers will avoid the market or wish they had, making life difficult for agents.
Re: “NeighborWorks America survey finds student debt, mortgage market confusion, and a declining marriage rate are weights holding back the housing market,” from NeighborWorks America