CHICAGO, IL--(Marketwired - Sep 11, 2014) -
- Homeowners who went over budget spent an extra $31,587 on average
- A third of first time homebuyers expect their parents to help pay
- Homeowners expect to be mortgage-free at age 59
According to a survey released today by BMO Harris Bank, the majority (61 percent) of Americans who say they're likely to buy a house in the next five years have put a home buying budget in place, but a third (36 percent) would go over the planned purchase price if they wanted the house enough. Among current homeowners, 49 percent stuck to their budget when bu ying but 19 percent went over and 20 percent didn't have a budget for their current home.
On average, American homeowners who went over budget exceeded it by $31,587. Those who came in under budget (13 percent) went lower by an average of $25,083. Half (49 percent) set a maximum amount they could spend and stuck to it.
"A budget is an essential piece to the home buying process. Putting one in place takes time, and has to consider a variety of factors including savings, income and interest and mortgage rates," said Kevin Christopher, Head of Mortgage Sales, BMO Harris Bank. "What we're seeing from our survey, and indeed in our branches from time to time, is that homebuyers don't always leave themselves that cushion. Implementing and stress-testing a budget is key, not only during the pre-approval process but to ensure that when interest rates go up, homeowners are prepared."
Taking the First Steps
First-time buyers are less likely to have a fixed budget that they will stick to (54 percent), and are more likely than those who have owned to say they are willing to go over budget (44 percent). A third (32 percent) say they expect their parents will help pay for the cost.
Nearly half (48 percent) say they will buy regardless of how much they have saved. Millennials are most likely to hold this view:
|I will buy regardless of how much I have saved||53%||49%||43%||34%|
While only 13 percent of first time buyers are currently pre-approved for a mortgage, 83 percent plan to go through the process before they purchase a home. There is some worry about the process, with 64 percent concerned they might not be pre-approved.
Putting the Money Down
The survey of American homeowners also found:
- The vast majority (89 percent) of homeowners had a mortgage at some point and half (52 percent) have had a home equity line of credit (HELOC) at some point
- A third (35 percent) are paying their original mortgage, while a similar percentage (30 percent) have refinanced, and 35 percent have paid off their mortgage
- Americans expect to have their mortgage fully paid off by age 59
- While not surprising that older homeowners are more likely to have paid off their homes, 40 percent of those over 65 are still paying off their mortgage
The average down payment that Americans planning to buy in the next five years will make is 25 percent, and 87 percent feel confident that they will have the down payment they're hoping for to buy their next house. However, only 39 percent say they are "very confident" of this.
"Household balance sheets are now relatively healthy, helped by rising asset prices, moderate income growth and, most importantly, lower debt levels. According to the Federal Reserve Bank of New York, from early 2008 to mid-2013, household debt was reduced by $1.5 trillion, as both borrowers and lenders came to terms with the housing and credit bubbles whose subsequent bursting is held to blame for the Great Recession," said Michael Gregory, Head of U.S. Economics, BMO Capital Markets. "Household credit is starting to flow again -- nearly $480 billion in the past year -- led by mortgages, student loans and auto financing. However, both borrowers and lenders are approaching HELOCs more conservatively, a sign that greater prudence might be the ultimate -- welcome -- legacy of the recent recession. Borrowing within one's means is critically important to maintaining a healthy state of household finances."
Survey results cited in this report are from a Pollara survey commissioned by BMO Harris Bank using interviews with an online sample of 2,500 Americans conducted between April 1st and 7th, 2014. The margin of error for a probability sample of 2,500 is ± 1.96%.
For more trends, tips and tools to help you plan for your financial future, including buying a home, visit bmoharris.com/YourFinancialLife.
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, Nevada, 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 $586 billion in assets (as of July 31, 2014).