Adjusting for the Costs of First-Time Homeownership
The landmark achievement of owning a home for the first time comes with many financial adjustments. First-time buyers are making significant lifestyle changes to accommodate the costs associated with homeownership, our survey found.
According to our survey, dining out (67%), retail shopping (59%) and vacations (53%) were the primary areas where new homeowners cut back on spending to afford their homes.
Nearly a third of first-time homebuyers (32%) have even canceled or paused streaming service subscriptions, which could save them over $500 per year, on average. This practice was 14 percentage points more common among first-time homebuyers than non-first-time homebuyers.
About one in seven first-time homebuyers said they have received help from a parent to cover mortgage payments, and many have reduced spending in other areas to afford their homes.
There are lots of ways for new homebuyers to manage their finances, and they may even be more proactive than other homeowners. Those we surveyed were 50% more likely than non-first-time homebuyers to seek financial planning assistance or counseling.
Spending so much of one’s income on homeownership costs that it leaves little for other expenses (often called “house-poor”) has been a reality for nearly three in four first-time homebuyers, our survey found.
Nearly half of first-time homeowners have had to increase their income through additional jobs or side hustles to sustain their lifestyle and afford their homes. The new financial commitment of homeownership has also made it harder for 82% of first-time homebuyers to save money.
The first-time homeowners we surveyed said they contribute 42% of their monthly income toward their mortgages and other home expenses, on average, which is far more than the recommended 30%.
This situation has led one in 10 homeowners to consider selling their home in the near future to reduce these costs, indicating that for some, the financial pressures of homeownership may outweigh its benefits.
Homeownership Impacts on Relationships
Homeownership can affect people’s perceptions of financial success, stress levels and even romantic relationships. Due to the strains of homeownership, 41% of homeowners experienced changes in their dynamics with significant others, our survey found.
These changes most often manifested as reduced quality time together (47%), new communication challenges (41%) and increased interpersonal conflicts (41%). Home size can also impact the stress homeowners experience.
Owning a larger home doesn’t only mean there’s typically a higher purchase price, but it can also lead to more maintenance and higher utility bills. These added responsibilities and costs can significantly increase a homeowner’s stress levels: Homeowners with properties over 1,926 square feet reported higher stress levels than those in smaller homes.
These findings suggest that couples living in larger homes could experience more stressors than those living in smaller homes.
A majority of homeowners (over three in four) also shared the belief that owning a home indicates financial success, underscoring the longstanding belief in homeownership as a key aspect of the American dream.
Yet the journey is not without its hurdles, particularly for those navigating the housing market for the first time: First-time homebuyers reported 12% higher stress due to homeownership than non-first-time homebuyers, according to our survey.
Despite the financial pressures of homeownership, the emotional and social rewards can also be significant. Among homeowners with tighter budgets due to housing expenses, 80% still reported increased overall life satisfaction due to homeownership.
Financial Challenges of Homeownership
The monumental decision to buy a home often comes with pros and cons, including significant satisfaction and unforeseen, expensive challenges. As a result, some homeowners expressed regrets about their home purchases, including nearly one in five millennials.
Our survey explored the sources of these regrets, the most common unexpected home expenses and how homeowners handle and prepare for these emergencies.
Both first-time buyers and those who have previously owned a home reported the same rates of regret with purchasing a home at 16%. The top reasons for these regrets illustrate the various challenges of owning a home with maintenance issues (54%), financial strain (46%), size or layout concerns (34%), location problems (34%) and neighbor disputes (25%) topping the list.
Almost one in five homeowners have had to take out a loan to cover unexpected home expenses, with the largest home emergency costing them an average of $4,536.
About two in five homeowners had established an emergency fund to prepare for unexpected home expenses, averaging $8,551 in savings per homeowner, according to our survey.
Experts generally recommend having enough in an emergency fund to cover at least three months of expenses, which can vary based on income, lifestyle and family structure. That may be harder for first-time homeowners, who were 10% less likely to have an emergency fund for home expenses than other homeowners.
One option to help homeowners maximize their emergency savings is placing these funds in a high-yield savings account. A good homeowners insurance policy can also provide some security against the financial strain of owning a home. On the bright side, a majority of homeowners (79%) expressed satisfaction with their policies.
Homeownership Realities: Beyond the Dream
Owning a home is rewarding but also presents challenges. Despite the financial strains and emotional toll, homeowners have generally experienced increased life satisfaction overall. Our insights point to the need for financial preparation and setting realistic expectations among those considering homeownership. Adequate savings and understanding homeownership’s responsibilities are key to successfully navigating this significant life milestone.
Methodology
To explore the financial impact of homeownership, we surveyed 1,000 homeowners, 63% of whom were first-time buyers. Responses were collected on Feb. 13, 2024. The survey has a 95% confidence level with a 3% margin of error.
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