Enjoy Renting Because Homeownership Really Does Suck Up All Your Cash

published Feb 28, 2019
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You saved up that down payment—and those extra closing costs. The furniture has been bought and the rooms have been painted. You’ve sent the movers a deposit and even paid your first mortgage payment! You’re past the most stressful financial part of homeownership, right? Not so fast. A large portion of American homeowners say they’re still facing financial anxiety—even after move-in day.

According to NerdWallet’s 2019 Home Buyer Report, one out of four new American homeowners say they no longer feel financially secure after buying a home—even though their home may be the biggest single investment they have. This number’s even higher for first-time homebuyers: 34 percent of them feel less secure money-wise after the big purchase.

So what gives? Apparently there are a lot of misconceptions during the home-buying process that lead to some financial instability and anxiety as homeowners.

It may be that home buyers are spending more cash than they need to on the down payment. In the survey, six out of 10 people said they thought they needed to put down at least 20 percent or more to purchase a home. But, believe it or not, 32 percent of homeowners in the U.S. put down five percent or less to buy a home. Many buyers who save up the full 20 percent may be using all of their cash savings, meaning there’s not much left for inevitable repairs, updates, and other unexpected costs that come with homeownership.

Yes, putting 20 percent down means avoiding private mortgage insurance (PMI), which ends up adding between 0.3 to 1.5 percent of a home’s value to the annual mortgage payment. But putting down less cash up front might be less anxiety-inducing in the long run. Some may prefer paying an extra couple of hundred dollars a month in PMI (plus more for interest and principal) if it means having some extra cash in savings in case of emergency. (FYI: This is a good topic to discuss with a financial planner, real estate agent, and mortgage lender before buying.)

Another unexpected, financially-destabilizing force is simply paying too much for a mortgage. According to the study, if American homebuyers had done more comparison shopping with their mortgages, they could have saved about $776 million altogether in a single year. That comes out to a little over $400 per homeowner in the first year of a 30-year mortgage.

Homeowners also are commonly ending up paying more than the listing price. According to the study, almost half of American home-buyers (45 percent) who bought in the past five years paid more for a property than its list price. Again, this was higher for first-time home buyers: 56 percent offered more than asking before having an offer accepted, and 15 percent of them said that their offers ended up being higher than they were comfortable with.

The takeaway here? Buying a home almost always ends up being more expensive than you think—so if you’re one of the 36 percent of Americans who plan to buy a home in the next five years (another study finding!), make sure you set a firm budget that’s also pretty conservative. You’ll probably enjoy that smaller home a little bit more than that one just outside your budget that makes you sweat a little every time your mortgage payment rolls around.

To read the full 2019 Home Buyer Report, head to Nerdwallet.