Homeownership remains a goal for most Americans. According to NerdWallet's 2018 Home Buyer Report, 91 percent of respondents want to own at least one home during their lifetime. However, that same report shows eight concerns renters have regarding that goal. If you haven't bought a home yet, see if they match your concerns.
1. Purchase Cost: Home prices were the top concern, cited by approximately 65% of renters. Recent statistics validate their concern. According to Trulia, prices rose in the starter market by almost 58% over the last six years. First-time homebuyers are being squeezed out of some markets entirely.
2. Maintenance Cost: It's easy to underestimate typical home maintenance costs – usually around 1% to 2% of your home's value on an annual basis. Fifty-eight percent of renters cited this concern, understanding that costs must be considered when calculating affordable monthly mortgage payments.
3. Financial Stability after Purchase: If a lender has assessed your risk correctly, you should still be financially stable after purchasing a home. However, your debt has increased substantially, and you have little margin for financial setbacks. Establish an emergency fund before you start the home-buying process.
4. Location Uncertainty: If you aren't sure where you're going to be in the next five years, a home can become as much of a burden as an investment. It's difficult to pull off a home sale in one market and a home purchase in another without financial stress.
Overall, around 38 percent of renters cited this lack of flexibility as a home-buying concern. Millennials had the greatest concerns at nearly 44 percent — a logical premise given that millennials are less established and more likely to have to move for job-related reasons.
5. Mortgage Qualifications: According to Federal Reserve data, mortgage denial rates are 11.4 percent as of 2016 — over 600,000 of the nearly 5.7 million applications that year.
High debt-to-income ratios and poor credit histories were the two primary reasons for mortgage denials. Renters with poor credit scores and/or excessive debts should clear up those issues before applying for a mortgage loan.
6. Application Process: The mortgage application process has become easier and more transparent over the last decade, thanks to regulatory efforts and simple new apps.
Even so, 28 percent of homebuyers consider the process stressful. Technology and explanations can only go so far to soothe nervous first-time homebuyers.
7. Long-Term Value: You're building equity with homeownership, but approximately one-quarter of renters are skeptical of the long-term investment value.
NerdWallet found that over half of respondents would rather have a home appreciate in value than have more money in their retirement savings. However, in pure investment terms of liquidity and return on investment, you can do better. According to a Credit Suisse/London Business School study on long-term value, individual homes returned 1.3 percent on average after inflation while the S&P 500 returned 9.8 percent.
8. Available Homes: Just under 25 percent of renters are concerned about home availability – and that number should be higher. Demand is outpacing supply in the housing market, especially with starter homes. According to Trulia, the starter home inventory has almost been cut in half (48.6 percent) over the last six years.
We can't tell you whether a home purchase is the right move for you. However, we can tell you that fear can lead to poor decisions. Assess your financial situation honestly based on facts and then lay out your plan — whether it's to enter the market, do some preparatory work, or stick with renting for the long-term.
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