The majority of Americans who say they’re likely to buy a house in the next five years have put a home buying budget together, but a third would go over the planned purchase price if they wanted the house enough, according to a recent survey by BMO Harris Bank. Among current homeowners, 49 % stuck to their budget when buying, but 19% went over and 20% didn’t have a budget for their current home.
On average, American homeowners who went over budget by more than $31,587. Those who came in under budget went lower by an average of $25,083. Half stuck to their maximum amount they could spend.
“A budget is an essential piece to the home buying process. Putting one in place takes time, and has to consider a variety of factors including savings, income and interest and mortgage rates,” said Kevin Christopher, Head of Mortgage Sales, BMO Harris Bank. “What we’re seeing from our survey is that homebuyers don’t always leave themselves that cushion. Implementing and stress-testing a budget is key, not only during the pre-approval process but to ensure that when interest rates go up, homeowners are prepared.”
Taking First Steps
First-time buyers are less likely to have a fixed budget that they will stick to, and are more likely than those who have owned to say they are willing to go over budget. A third say they expect their parents will help pay for the cost. Only 13% of first-time buyers are currently pre-approved for a mortgage, 83% plan to go through the process before they purchase a home. There is some worry about the process, with 64% concerned they might not be pre-approved.
Putting Money Down
The survey of American homeowners also found:
- The vast majority of homeowners had a mortgage at some point and half have had a home equity line of credit (HELOC) at some point.
- A third are paying their original mortgage, while a similar percentage have refinanced, and 35% have paid off their mortgage.
- Americans expect to have their mortgage fully paid off by age 59.
- While not surprising that older homeowners are more likely to have paid off their homes, 40% of those over 65 are still paying off their mortgage.
The average down payment that Americans planning to buy in the next five years will make is 25%, and 87% feel confident they will have the down payment they’re hoping for to buy their next house.
“Household balance sheets are now relatively healthy, helped by rising asset prices, moderate income growth and, most importantly, lower debt levels. According to the Federal Reserve Bank of New York, from early 2008 to mid-2013, household debt was reduced by $1.5 trillion, as both borrowers and lenders came to terms with the housing and credit bubbles whose subsequent bursting is held to blame for the Great Recession,” said Michael Gregory, Head of U.S. Economics, BMO Capital Markets. “Household credit is starting to flow again — nearly $480 billion in the past year — led by mortgages, student loans and auto financing. However, both borrowers and lenders are approaching HELOCs more conservatively, a sign that greater prudence might be the ultimate — welcome — legacy of the recent recession. Borrowing within one’s means is critically important to maintaining a healthy state of household finances.”
If you are in the market for a new house and would like information on homes for sale, or are first time home buyer not working with a Realtor and would like to schedule a consultation with a qualified Oakland County and Macomb County Realtor, please complete the Lang Premier Properties contact form to have a real estate agent contact you.