There shouldn’t be any hidden costs

When you buy a house there shouldn’t be any hidden charges, but there might be some surprises during the homebuying process. Here are a few that catch some home buyers off guard.

house
house

Closing costs can come as a surprise. Your lender will ask you to get and pay for a year’s worth of homeowners insurance upfront.(the national average for home owners insurance is $2305 a year) Lenders will collect one 12th of the amount of property taxes and homeowners insurance and pay the bills the next time they are due.

You will pay real estate taxes from the day that you close until the end of the month. You may also pay a partial month of mortgage interest and if buying a condo you may pay a partial month’s worth of association dues.

If you work with a real estate agent from one of the larger real estate companies you will pay a fee of around $500 dollars to the real estate company.  There is usually a fee for the closing and there are fees for title searches and credit checks too. Some lenders will charge for the appraisal upfront before the closing.

Most home buyers are well aware that they need a down payment which is also usually due at closing. Mortgage lenders include closing costs in their good faith estimates. Borrowers are given a full list of charges before the closing. There should never be a surprise charge at the closing.

Once you buy a house there may be some more unexpected costs. I always tell people who are buying older homes to start an emergency house fund. Things break and they wear out too. Start the fund with $500 and add $25 a month to it every month.

There are programs that provide funds for down payments and closing costs. I have had a few home buyers take advantage of these programs.  There are other options too. Let your lender know you are a first time home buyer.

Homebuyers in 2020 vs 2015

I thought it would be interesting to compare the profile of the typical homebuyer in 2020 to the typical buyer in 2015. Each year the National Association of Realtors (NAR) puts together profile reports.

The typical home buyer in 2020:

  • First-time buyers made up 31% of all home buyers, a dip from last year’s 33%.
  • The typical buyer was 47 years old this year, and the median household income for 2019 rose again this year to $96,500.
  • 12% of home buyers purchased a multi-generational home, to take care of aging parents, because of children over the age of 18 moving back home, and for cost-saving.
  • 18% of recent home buyers were veterans and 2% were active-duty service members.

The typical home buyer in 2015:

  • First-time buyers made up 32% of all home buyers, down from 33%  last year.
  • The typical buyer was 44 years old and had a median household income of $86,100.
  • 13% of home buyers purchased a multi-generational home to take care of aging parents, for cost savings, and because children over the age of 18 are moving back home.
  • 18% of recent home buyers are veterans and 3% are active-duty service members.

It looks like home buyers have gotten a little older and earn about $10,000 more a year. The numbers haven’t changed all that much. The typical home buyers I have worked with and am working with this year are in their 30’s.

In the glossy ads, home buyers are a man and a woman with children. They are usually under 40. That seems to be the target group for home builders too but I think that kind of targeting violated fair housing rules.

It isn’t OK to overspend on housing

I recently read an article about how home buyers will go over budget for a house with enough space in the “right” neighborhood.

dormer
Dormeneighborhood. For most people, part of what makes a house perfect is the location.

Spending too much on a house has a long-lasting impact. We call it being house poor and being house poor will color every aspect of your life.

Overspending a little happens. Those who overspend by a lot regret it.

People who buy more affordable houses have some flexibility and an easier time to get through job losses and life changes.

Houses need to be maintained which can be hard to afford when the budget is already stretched.

Set a limit when house hunting and stick to it. Your older self will thank you for that. There is no perfect nieghborhood or location or house.

First time home buyers young and old

old brick building and new apartment building
Panama Flats and Irvine Exchange apartments

The best part of my job is when I get to work with first time home buyers and I have worked with many first time homebuyers, probably more than 100.

Yesterday a local teacher and client of mine closed on a beautiful loft downtown St. Paul. She turned 30 a few months ago. The average age of first-time homebuyers is around 33 and the median age of home buyers last year was 47. [National Association of Realtors Data].

The oldest first time home buyers I ever worked with were women in their late 50’s. One of the women had rented her entire life and decided that she wanted to invest in a place of her own.

She loved the apartment she was renting and comparing it with what she could buy at the time set the bar pretty high. We looked for months until she bought a beautiful condo just off Grand Avenue in St. Paul.

Another first-time homebuyer was divorced and bought her first home as a single person when she was over 55.  She bought an adorable little rambler that has been recently rehabbed.

The youngest first-time homebuyer I ever worked with was 19, I have worked with several who were in their early twenties.

The oldest home buyers I ever worked with were 78 years old. They downsized from a house to a townhouse. They weren’t first time home buyers but I am including them as an interesting statistic.

Working with homebuyers is generally harder work than working with sellers. It is extra challenging because of the seller’s market and the pandemic. Working with an experienced REALTOR is more important than ever.

Active home buyers are out in force

Here is a chart from Showingtime that shows appointments to see houses that are for sale. ShowingTime is widely used for appointments throughout the region and the data is always interesting.

showingtime chart – click on the chart to enlarge

Activity is up from last year and the chart shows the dip in March and May due to the stay at home orders. Year over year the numbers are up and as I showed last week home sales are strong.

As an interesting statistic homes that sold in March and April got an average of 6.5 showings before selling. Current averages are 7.6 showings per home.  Year over year showings are up and so are home sales.

18-29 year olds living with mom and dad

It feels like Deja Vue. During the great recession and young people continued to live with their parents because they had student debt and jobs were scarce.

According to PEW research, 52% of young adults (18-29) live with their parents. That is more than half and the largest number since the great depression.

The pandemic is credited with a migration back to mom and dad.

“in July, 52% of young adults resided with one or both of their parents, up from 47% in February”

Yet there is no shortage of homebuyers. Homes on the market in the metro area continue to sell quickly and often with multiple offers.

Maple leaf
Maple leaf