It's been said that the millennial generation is a generation that loves to enjoy experiences and doesn't like to be tied down to anything. Because of this, millennials are said to not be interested in purchasing homes. In fact, a new survey from Bankrate confirms this, stating that nearly half of all homeowners have buyer's remorse, and that number rises to 63 percent for millennial homeowners. This is the highest out of all the generations. But why the change of heart?
According to the survey, homeowners say that the costs of owning a home, including unexpected maintenance and other hidden costs, are the main reasons for the regret. So, if you're a millennial who may be thinking about buying your first home, how do you prepare for the unexpected? They say knowing is half the battle. Ahead, I share five unexpected costs you might face.
1. Closing Costs
When purchasing a home, most people worry about the interest they're going to pay on the mortgage and the amount of the down payment. However, what many millennials need to remember is that after your offer is accepted, there will be closing costs that need to be paid in order for you to purchase your home. Closing costs may vary, but on average, they'll be between 2 and 5 percent of the home's purchase price, and these costs include any lender's fees, appraisal fees, escrow fees, title and/or attorney fees, interest, or any other miscellaneous fees that need to be paid up front. If you're not properly prepared, these fees can eat up a good chunk of your savings.
2. Home Inspections
When you're buying a home, you want to make sure that it's in the best shape possible, and if there are things that need to be addressed, that you know about them up front. You can't rely on what the seller or agent is showing you because they'll do what's in their best interest, so before you officially close on your home, you want to have someone thoroughly inspect it to make sure you aren't buying someone else's problems. This can include faulty foundations, insect problems, fire damage, termites, electrical issues, and water damage — anything that can become costly in the long run if not addressed early. The size of the property will determine the price of your home inspection.
3. Maintenance and Repair
When you're renting an apartment, your landlord is your first line of defence when things break down, but as a homeowner, everything is on you. This is another unexpected fee that millennial homeowners should anticipate. From the water heater to the boiler to the air-conditioning system, you have to be prepared for unexpected emergencies. Even if you're handy around the house, you still want to have some cash around if the job requires more expertise or additional help.
4. Budget For Ongoing Taxes and Insurance
The biggest mistake that millennials (and truthfully most homebuyers) make is that when they budget for their monthly payments, they really only focus on the price of the home and what the mortgage will cost them, but the reality is that the monthly payments will include taxes and insurance. In the mortgage world, this is called your PITI, which stands for Principal Interest Taxes and Insurance. If you take out a fixed loan, your principal and interest is going to remain the same throughout the life of your loan, but your taxes and insurance can fluctuate based on many factors. This is a hidden cost that many first-time home buyers are not prepared for and can really throw off their budget and finances if not prepared correctly.
5. Prepare For Higher Utility Bills
Lastly, many first-time home buyers either come from an environment where they were not responsible for utilities for the entire place or they lived in a smaller space than what they're buying. A hidden cost many people don't consider is the utility bills. When you buy a home, nine times out of 10, you'll be paying for gas, electric, and water, which may not have been the case when you were renting. You also have to keep in mind that in some instances, you'll have to pay for trash pickup, which can also become costly. It's a good idea to make phone calls and find out what the average bills for utilities, water, and trash are prior to signing on the dotted line to ensure that you can truly afford your new purchase.
Owning a home can be a gift or a curse depending on how much you prepare yourself. If you do the right research, save the right amount of money, and have a good enough cushion available for unexpected expenses, then a home can provide you the freedom that you desire. But if you go in haphazardly, your purchase can cause you financial challenges. The choice is yours, but nothing beats preparation!
Luvleen Sidhu is the president, cofounder and chief strategy officer at BankMobile, the largest and fastest growing digital bank in the country helping the underbanked, millennials, and middle-income Americans have an affordable, effortless, and financially empowering banking experience.