If you’re a millennial and you’re looking to buy your first home, you’re not alone. According to an RBC Economic Research study released in February of this year, Canada has the world’s largest group of homeowners. Millennials in Canada make up more than 40% of homeowners. In Calgary this number jumps up to 50.6%. Buying a house is obviously still a pretty big right of passage into adulthood for many young Canadians.
However, despite the high number of millennials buying homes there is also an extremely high number of new homeowners who have regrets about the purchase. Depending on the survey, anywhere from 51% to 70% of millennial homeowners are unhappy with their homeowner status in some way. What do they wish they had done differently and how can you avoid the mistakes they made so that you’re not left with the biggest case of buyers remorse of your life?
A lot of young buyers know ahead of time that their best first step is to get a pre-approval (and if they don’t already know this they figure it out PDQ.) A pre-approval gives you a good idea how much money you can expect to borrow from your lender for a mortgage. House hunters head out into the real estate market with a budget in mind based on this pre-approval, but they often forget to add in the other expenses associated with owning a home of their own. They were missing a few pieces of the picture.
The first big piece many new homeowners were missing when they bought their first home was the extra expense. The mortgage they fully anticipated. But there are other costs above and beyond your monthly mortgage payment that far too many house hunters don’t even know about or consider before signing on the dotted line. These costs include bills renters do not typically have to worry about, like property taxes, home insurance, and some utilities like water, sewage, and garbage removal. Most new owners expect to keep paying utilities like heat and electricity but fail to anticipate how much they will consume in a larger home. When you’re trying to decide if you can afford to buy your own home, you’ll obviously look at the cost of a mortgage, but make sure you factor in these other bills as well. When you’ve found a home you’d like to make an offer on, have your realtor find out from the current owners just how much their bills have cost over the last 12 months. This will give you a more rounded out idea of what living in this home will cost.
The second piece of the picture new homeowners don’t always anticipate is the expense associated with regular maintenance and upkeep of the home. Renters don’t usually have to worry about repairs and maintenance but homeowners are on the hook for all of it. Experts agree that homeowners should plan to spend 1% of the price of their home each year on maintenance. If you paid $400,000 for your home, you can expect to spend $4,000 each year on upkeep. These are things like buying a lawnmower, having the carpets cleaned, painting a room (or two), renovating a bathroom, putting on a new roof, or replacing appliances that kick the bucket. If you don’t spend the 1% one year, make sure you put it away for years to come. Some repairs will cost a lot more than 1% and you’ll want to be prepared for the expense.
The next regret some millennial homeowners have that costs them a lot of money is not getting a home inspection before the purchase or ignoring the advice of their inspector. A good inspector can spot many issues that may not be obvious to you. Ignoring their advice can lead to big problems that can make a big dent in your wallet. If you do take their advice, leave some buffer room in your budget for repairs. About half of homeowners say that they spent more than they expected on planned renovations.
Another financial regret many homeowners have is that they spent all of their savings account on the down payment. Doing this might have saved them some money on their mortgage payments but it also means that they are now cash poor. Too many new homeowners do this and then struggle to pay for necessary home renovations, emergency repairs, or simply miss out on the security and peace of mind that comes with having some money stowed away in the bank in case of emergencies.
One big regret millennial homeowners have that doesn’t have to do with money is that they settled on a house they didn’t really like or that didn’t meet all their needs. This can happen when a buyer feels pressured to buy quickly or if the market doesn’t have exactly what they need but they feel forced to take what they can get. Having buyers remorse over a house is a big deal and one that isn’t easily solved. Make sure you take the time to find what you need and not to buy until you are completely confident in the purchase. If your financial profile needs some work take 6 months to a year to work out the kinks so that you’re in a strong position before you head into the housing market. If you have the means to get what you want but the market isn’t giving you the options you were hoping for, consider widening your search parameters. Make a list of items in your home that are absolute must-haves and make a list of items you are willing to compromise.
The next mistake home buyers regret is buying a home they love in a neighourhood that doesn’t work for them. This can happen when you find a great house in bad neighbourhood. It can also happen when the neighbourhood seems great but you later find out it was zoned for some major construction projects that change the vibe and function of the community. Another problem many millennial buyers face is choosing a neighbourhood that works for them right now only to outgrow it 5 or 10 years later. A home based in a pedestrian part of the city might work for you on the day of purchase, but will it work in a few years when you have personal or career changes? When you’re choosing the location of your home, consider where you plan to be in the game of life 5, 10, or 15 years from now.
Despite the high number of millennial homebuyers who have regrets over their purchase, it’s interesting to note that according to a bankrate.com survey, 79% of dissatisfied buyers still feel that owning a home is a big part of the American dream. It’s reasonable to assume that many Canadians share the same sentiment. If you’re a millennial looking to buy your first home, avoid these same regrets by doing your research. Find out exactly how many expenses you can expect to be responsible for and how much they will cost. And make sure you keep a level-head when you choose the home you want to call your own.