- The bank of mom and dad: One quarter of first time buyers expect financial help from parents or relatives
- Expected down payment is 13 percent
- Majority of first-time buyers have made lifestyle cutbacks to save money
CHICAGO, ILLINOIS--(Marketwired - March 5, 2015) - First-time home buyers have increased their budget to an average of $238,935 - up from $193,197 in 2014 - according to the BMO Harris Bank 2015 First-Time Home Buyers Report released today. This represents an increase of 24 percent over the past year. The average down payment percentage now stands at 13.4 percent, down from the average 16 percent in 2014.
The report also found that first-time home buyers are:
- Making more cutbacks to their lifestyle to save for a home. In 2015, the majority of first-timers (77 percent) say they have made cutbacks; this is more than those who reported cutting back in 2014 (72 percent).
- More aggressive than experienced buyers. Over half (52 percent) of first-time buyers are willing to enter into a bidding war and make an offer over the asking price to get the home they want, versus almost half (47 percent) of likely buyers.
- Expect help from relatives in purchasing their first home. One quarter (26 percent) expect parents or other relatives to help them pay for their first home.
Despite the increased average budget from previous years, only one quarter (24 percent) of first-time buyers are very confident that they will have the money they need for a down payment. Their veteran buyer counterparts report more confidence (41 percent).
"To help ensure first-time buyers don't spend beyond their means, they need to be fully prepared to purchase the right house, at the right price," said Kevin Christopher, Head of Mortgage Sales, BMO Harris Bank. "Getting pre-qualified gives buyers the opportunity to consider multiple options with confidence during a time-sensitive decision period."
The report also found that many buyers are thinking ahead before shopping for their first home. While only one in ten (13 percent) are pre-qualified for a mortgage, over three quarters (78 percent) are planning to be pre-qualified before seriously searching.
"Buying a home is one of the most important financial decisions you can make, and building a significant down payment is a big part of that journey," said Christopher. "BMO Harris Bank can help manage this process by developing a budgeting plan that will save time and money in the long term on all aspects of home buying and prepare you for the financial commitment."
BMO Harris Bank offers the following advice for homebuyers searching for a home this spring:
Get pre-qualified: Get a head start on planning by getting pre-qualified for a mortgage before setting out to lock down the perfect home.
Live within your means: Stick to the "one third" rule to ensure you're living within your means. Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of overall household income.
Think carefully about fixed vs. variable: While variable rate mortgages have been a winning strategy over the long term, fixed rate mortgages (currently near historic lows) come with the peace of mind of being insulated against rate increases.
"Three forces have held back first-time buyers - student debt, cautious banks and weak incomes," says Sal Guatieri, Senior Economist, BMO Capital Markets. "This year, easier credit standards and stronger income growth should encourage more Millennials to take the plunge, giving the housing recovery more punch."
For additional home buying tips and resources, visit www.bmoharris.com/YourFinancialLife.
This survey was conducted by Pollara and are compiled from a random sample of 2500 Americans 18 years of age and over between January 23rd and February 9th, 2015. A probability sample of this size would yield results accurate to ± 1.96 per cent, 19 times out of 20.
About BMO Harris Bank
BMO Harris Bank provides a broad range of personal banking products and solutions through more than 600 branches and approximately 1,300 ATMs in Illinois, Wisconsin, Indiana, Kansas, Missouri, Minnesota, Arizona and Florida. BMO Harris Bank's commercial banking team provides a combination of sector expertise, local knowledge and mid-market focus throughout the U.S. For more information about BMO Harris Bank, go to the company fact sheet. Banking products and services are provided by BMO Harris Bank N.A. and are subject to bank or credit approval. BMO Harris Bank® is a trade name used by BMO Harris Bank N.A. Member FDIC. BMO Harris Bank is part of BMO Financial Group, a North American financial organization with approximately 1,600 branches, and CDN $672 billion in assets (as of January 31, 2015).