Anyone who has been through the homebuying process — or who’s gearing up to go through it — knows it can be stressful. And one of the most stressful aspects of it is the finances. After all, your home is likely the biggest purchase you will ever make in your life, so it’s no wonder that most Americans (81%) ranked buying a home as their biggest financial burden, above saving for retirement (77%) and saving for a child’s education (46%), according to a recent study conducted by Opendoor.
Here’s a look at the financial aspects of homebuying that stress Americans out the most — and what can be done to mitigate these stressors.
Taking on Additional Debt
According to the Opendoor study, 74% of prospective homebuyers are wary about taking on additional debt. This fear may be growing as interest rates rise.
“Taking on debt with interest rates climbing is certainly something to think long term about,” said Stephanie Sedlak, spokesperson at Opendoor. “Buyers should understand their limits and non-negotiables. Set boundaries going into the search process, so you’re less likely to be persuaded to go higher or take on more debt than you’re really able to.”
In addition to setting boundaries, first-time buyers should look for ways to save money during the process to reduce the amount of debt they have to take on.
“In 2022, 90% of first-time homebuyers found ways to save money on fees involved in the process, with about half reporting doing their own research (49%), asking more questions about fees (37%) and negotiating fees in the process (36%),” Sedlak said.
It’s also important to remember that taking on mortgage debt is not equivalent to taking on other forms of debt, like credit card debt.
“Mortgages are considered ‘good debt’ because unlike credit card debt, you’re able to build wealth by taking out a mortgage, and timely repayment can strengthen a buyer’s credit considerably,” Sedlak said. “Additionally, having a mortgage means you’re paying interest, and interest is included in your deductions when you file your taxes each year. This means that long term, you can end up earning money from your mortgage.”
Saving Enough Money
Saving up enough for a down payment can be intimidating, so it’s no surprise that 67% of prospective homebuyers say they are stressed about saving enough money to buy a home.
“Saving for a down payment is no doubt a daunting feat; however, don’t get overwhelmed thinking you have to put down 20%,” Sedlak said, noting that you may be able to put as little as 3% down. “Start by putting whatever you have left over each month in a separate savings account dedicated to your down payment fund. Put any money that happens to come your way by surprise — i.e. a high tax return or a bonus — in that separate savings account, and do your best to cut costs where you can. Slim down on subscriptions and even shop a bit more frugally.”
While working to build up your down payment savings, it’s also a good idea to meet with financial professionals who can guide you.
“When you’re ready to start the home shopping process, evaluate your finances by having a conversation with a lender to understand what you can truly afford,” Sedlak said.
“Once you have a range, take the opportunity to get pre-qualified or pre-approved for your mortgage loan,” she continued. “This gives you a good idea of what loan you’ll qualify for and signals to home sellers that you’re a serious buyer who should be able to move smoothly through the buying process, giving you an edge in a competitive bid situation.”
Affording Future Monthly Payments
Over half of prospective buyers (53%) are fearful of future monthly payments. However, you should get a good idea of what your monthly payment would be before making an offer, and only buy a home that you can actually afford.
“A monthly payment should ideally be a comfortable amount that works for your household income long term, allowing your mortgage to remain as ‘good debt,'” Sedlak said. “Typically, this monthly payment is less than 28% of your gross monthly income.”
It’s important to note that there are other expenses you should be prepared for as well, so be sure to keep some wiggle room in your monthly budget.
“Unexpected expenses are always a possibility,” Sedlak said. “In fact, according to Opendoor data, cost and budgeting were among the top surprises for first-time homebuyers (58%), including unexpected expenses such as closing costs or taxes (38%), and the impact on monthly budgeting (32%).”
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