How to Help Consumers Get Off the Financial Sidelines
March 14, 2019
Some consumers may be holding back from homeownership due to a lack of financial knowledge. Sixteen percent of non-homeowners say they feel they would have difficulty qualifying for a mortgage due to a lack of financial knowledge. Thirteen percent say they do not know the first step in the process, according to the first quarter 2018 HOME report, produced by the National Association of REALTORS®.
Embarking on a homeowning journey takes plenty of financial preparation. For those who decide to dive in, homeownership has a long history of serving as a long-term wealth-building mechanism.
“Financial literacy is an important determinant of homeownership because it affects savings behavior,” writes Michael Hyman, a research data specialist, on NAR’s Economists’ Outlook blog. “If parents do not teach the right values and skills, we can see some of the reasons why it is difficult for adult children to make strides in making sound financial decisions, including purchasing a home.”
Some real estate professionals are teaming up with lenders and financial experts to offer community seminars to help consumers learn more about the financial steps needed to homeownership. The talks could center on boosting credit scores, saving for the down payment, and the process of applying for a mortgage.
Here are a few additional topics to cover:
Debunk some myths: One common myth hindering some would-be buyers into homeownership is the false belief that they must have a 20 percent down payment to qualify for a mortgage. Certainly, a 20 percent down payment will allow buyers to bypass paying private mortgage insurance each month. But there are many loan programs available to homeowners who have less, particularly first-time buyers. The median down payment of buyers was 13 percent in 2018, according to NAR’s Profile of Home Buyers and Sellers Report. First-time buyers paid a median 7 percent down payment, while repeat buyers paid a median 16 percent. Read: Resources for Buyers Struggling With Down Payments
Urge them to shop around: To help lessen costs, buyers could fare better by shopping around for mortgage rates. Home shoppers who compare interest rates between five different lenders can pocket $430 in savings in their first year alone, according to NerdWallet’s analysis using a 30-year, fixed-rate $260,000 mortgage.
Talk budget sense: The biggest regret young adults have after a home purchase centers around the finances. Sixty-three percent of millennial homeowners—more than any other generation—expressed buyer’s remorse, most often pertaining to closing costs, home maintenance, and other hidden expenses, according to a survey by Bankrate.com of more than 2,000 consumers. Real estate professionals may want to initiate more conversations about budgeting with their clients to help them better prepare for the true costs of ownership.
The average cost of maintaining a home each year is about $16,000, according to a Porch.com analysis last year. Buyers also should be prepared for some extra costs at closing, such as inspection fees.
“The Impact of Financial Literacy on Homeownership: Enhancing Financial Literacy Skills,” National Association of REALTORS® Economists’ Outlook blog (March 7, 2019) and REALTOR® Magazine
Updated: July 23, 2019