69% of Homeowners Wish They Had Saved More Money

A recent survey by Freedom Debt Relief found that many American homeowners are having trouble paying off their homes and wish they would have saved up a bit more down payment money before purchasing their home. The survey polled 1,028 U.S. homeowners who were carrying at least $10,000 in unsecured debt. Unsecured debt includes credit card debt as well as medical bills.

The survey discovered that well over half, a total of 69 percent felt they should have saved up more money for the down payment on their home. In addition, 52% of homeowners said their monthly mortgage payment is too high while 29% found that owning a home stresses them out. Another 26% find owning a home a burden and 40% say they weren’t aware of all of the mortgage options available to them.

Despite all of those depressing statistics, a solid majority (59 percent) still feel that owning a home is a big part of the American dream.

Homeownership Getting More Expensive

Prospective home buyers may need to save up more for a down payment as homes become more expensive. According to the 2019 Home Affordability Report by Unison, the median home value went up by an average of 6 percent between 2017 and 2018 which pushes up both the required down payment and monthly mortgage payment for new homebuyers. 

The report also discovered that it would now take over 25 years to save up for a 20 percent down payment for people earning the median income in major cities such as Los Angeles, San Diego and New York City. Across the rest of the nation, it takes roughly 14 years for median earners to save up a 20 percent down payment. This can make it very difficult for young buyers to afford a home. 

“The way things are going, an entire generation of Americans may be approaching retirement before they can securely own a home or be forced to take on more risk than they can reasonably afford in order to realize their dream of homeownership,” said Unison CEO Thomas Sponholtz said in a recent press release. “This is a societal and economic problem that impacts all income levels.”

Saving up for a down payment is even more difficult for young homebuyers who are carrying student loan debt. A survey by the real estate site Clever found that 48 percent of undergraduates that are carrying student loan debt have put off buying a home. 

Another major obstacle for new homebuyers is the fact that while house prices have absolutely gone up over the last few decades, U.S. workers income has stayed roughly the same. 

How Much Should I Have for a Down Payment?

If you don’t want to end up like the 69 percent who regret not saving more for a down payment you will need to set a savings goal. While everyone’s situation is different, there are some pretty standard guidelines to help you decide how much money you need before shopping for a new house. 

One of the first things you need to do is calculate exactly how much home you can afford. Both the federal government and most mortgage experts recommend that you should not spend more than 30 percent of your gross monthly income on housing costs. This is fairly easy to calculate and gives you a solid idea of how much home you can actually afford. 

Getting preapproved for a mortgage will help you determine how much home you can shop for as well as make you give some serious thought to your income and expenses. A mortgage lender will usually give you a preapproval range, keep in mind though that their job is to lend money, and in many cases,  you may end up approved for more than you can truly afford. 

Your monthly mortgage payment will depend on the cost of the home you are purchasing as well as the interest rate and your down payment. While your down payment will absolutely impact how much of a mortgage you are carrying, it also affects the interest rate. While it varies by lender, most mortgage companies offer a lower interest rate to those who have a larger down payment so saving additional money can result in a better interest rate.

Most industry experts recommend having at least 20 percent in the bank but it is possible to secure a mortgage with as little as 10 percent down. If you decide to go with a lower down payment, make sure you fully understand your mortgage payment as well as all other terms of the loan before signing on the dotted line. 

It is often best to stay in the middle to low end of your preapproval range. Being house poor is never fun and a new house comes with a number of additional expenses that may come as a surprise.

Consider Other Expenses

In addition to the mortgage payment, you need to consider the other expenses that come with homeownership and make sure you can afford the total cost. Here are just a few expenses to consider:

• Homeowner Insurance: This is a major expense that should always be considered when buying a new home. Always get multiple homeowners insurance quotes on any home you are seriously considering so there are no surprises after you have closed.

• Flood Insurance: If your new home is waterfront or in a high-risk flood zone you will need to carry a flood insurance policy, and this can be expensive. Flood insurance is available through the National Flood Insurance Program or private insurers. 

• Property Taxes:Property taxes are a big part of home ownership and they are due every year. Make sure you can comfortably afford the taxes on your property and always assume they will be going up in the future so plan for these additional expenses. 

Property Maintenance: There is always routine maintenance that comes into play with a house. Lawn care, snow removal, cleaning gutters and other home maintenance adds up, but those costs can rise dramatically if the mechanicals or roof are getting old. Replacing the major systems in your home or putting a new roof on a house can spiral expenses out of control. It is always a good idea to have some emergency savings set aside for large bills that crop up.