Owning a home is one of the pillars of the American dream, but over 80% of American homebuyers do not know much about how to buy a home.
A new survey from Real Estate Witch asked 1,000 Americans about the home-buying process, how much it costs, and how to qualify for a mortgage. The results show most Americans know very little about one of the most expensive purchases they will ever make.
Slow Down and Increase The Budget
More than half of Americans have a fear of missing out when it comes to buying a home. This fear is based on misconceptions, according to Real Estate Witch.
Three-quarters of Americans think homeowners purchase their first house at a young age. But the average age of a first-time homebuyer is 36. This suggests many buyers feel rushed to buy their first home and might overextend themselves financially based on false assumptions about their peers' actions.
Once buyers start their home search, most realize they do not know as much about the market as they thought. An overwhelming 83% of homeowners report they were surprised by some aspect of buying a home.
Many were particularly surprised by the cost of buying a home. About 65% of buyers had to adjust their budget downward, and 63% had to modify their priorities.
Although mortgage rate increases have cooled the housing market, home values are still near all-time highs. Although 76% of non-homeowners say they are concerned about rising home values, 60% still underestimate the median home price.
Only 14% of respondents know the median home price is between $400,000 and $499,999. As a result, 34% of buyers paid more for their homes than initially planned.
“Without knowing what budget to look for, what one can be approved for, and total costs involved, looking [for a home] is a big mistake and a waste of time for many buyers,” says Ryan Radecki, a real estate agent at Highgarden Real Estate in Indianapolis. “I think now, more than ever, having a buyer consultation with a lender is imperative prior to looking at homes and will only help the buyer in the long run.”
Many Americans underestimate the ongoing costs of owning a home, too. The average homeowner spends $13,150 annually on home-related expenses, such as repairs and maintenance. Yet 48% of Americans believe annual homeownership expenses are less than that.
Americans who buy a home without understanding how much it costs could be in for an unpleasant financial shock down the road.
Buying a Home Is Easier Than It Seems
The difficulties of buying a home in 2023 are well known: high mortgage rates, low inventory, and bidding wars for starter homes. However, these difficulties have been so widely publicized that many Americans think it is much harder to buy a home than it is.
For example, mortgage lenders recommend putting down 20% on a home, but that’s not an ironclad requirement. Yet 62% of Americans believe that large a down payment is essential, and 21% believe they must put down more than 20%.
“First-time homebuyers think they need to put down 20%,” says Isadora Sarto, a Boston-based agent. “Many also believe that private mortgage insurance sticks with them for the life of the loan, when in reality, they can remove PMI after they achieve 80/20 in most cases.”
In some circumstances, buyers can get a conventional loan with a down payment as low as 3%, and there are government-backed mortgages that require zero money down.
Homeowners confirm that prospective buyers overestimate the importance of a down payment. Although 23% of buyers think saving for a down payment will be the most challenging aspect of buying a home, only 8% of actual homeowners say it was.
Americans are even less informed about mortgage rates and loans. Only 12% of respondents know that the current rate for a 30-year mortgage is between 6% and 7%. About 43% think the rate is higher, with a quarter thinking it is higher than 10%. The last time mortgage rates topped 10% was in 1990.
Two-thirds of Americans wrongly assume buyers should find their dream home before getting pre-approved for a mortgage. Thirty-two percent think they need a credit score of at least 700 to buy a home. In reality, buyers can qualify for a conventional loan with a credit score of only 620.
Complicating matters is that 43% of non-homeowners believe they know about the mortgage process. But they are likely proceeding under many false assumptions.
An Agent Is a Buyer's Best Friend
Fifty-one percent of respondents underestimate how much they will pay in real estate commissions when they sell their home. Only a minuscule 11% know agents typically earn a commission equal to 6% of the final sale price.
Although sellers usually pay commissions for the buying and listing agents, 62% of buyers believe they will have to pay their agent’s commission. As a result, 65% of buyers think they can save money by not working with an agent.
This assumption is a mistake. Buyers who forgo an agent put themselves at a disadvantage during negotiations, and rarely save money.
Buyers are also confused about how agents help them. Nearly two-thirds of non-homeowners think they negotiate directly with the home seller, but in reality, the agent handles this task.
Some real estate agents offer their clients online courses on the basics to counter misinformation about home buying and the housing market.
“I schedule first-time homebuyer Zoom seminars,” Sarto says. “I do the same for first-time home sellers.”
It’s clear that most buyers and sellers would benefit from basic knowledge about buying and selling a home. An educated market is a more efficient market, and that benefits everyone.