MoneyWise Live | August 6, 2018

Millennial Home Buyer’s Remorse

Show Notes

After the wedding bells and the honeymoon, a young couple’s thoughts and dreams naturally turn to buying their first home. That desire can be overwhelming but is it the right move or something they’ll regret?

Buying a home is likely the biggest financial decision any couple will make - often made while their still in their 20s. Financial planner and teacher Rob West has startling stats on that on this edition of MoneyWise Live.

Couples in their first few years of marriage want to know if it’s the right time to buy a house. That desire is strong and it’s understandable. They want to get their married life started with the American Dream of owning their own home. And for some of them, if they have their financial ducks in a row, there’s nothing wrong with that.

The Bible doesn’t give us the appropriate age to buy a house but according to data compiled by Bank of the West, they found that about 4 in 10 millennials, ages 21 to 34, are already homeowners. It seems that number should be even higher given the interest young people express in making a home purchase and that 40-percent figure will likely rise as the economy continues to improve but there’s a really interesting number that came out of the study— more than 2/3rds of millennials (68%) have buyer’s remorse about their home purchase. That’s twice as many as Baby Boomers who say they regret buying a home.  Another factor in the study might help explain that. Millennials placed a very high priority on pursuing a passion. And if that passion is buying a house right away, maybe that’s why they regret the decision more than Baby Boomers.

There are several reasons for that high number. 1.) The way they came up with the down payment. MoneyWise strongly recommend a 20-percent down payment so you avoid private mortgage insurance or PMI.  PMI typically costs between 1/2-1% of the loan amount annually. So on a $100,000 loan, you could be paying as much as a thousand dollars a year for PMI.  Obviously, it’s smart to avoid that.

The survey also found 1/3 of them tapped their retirement accounts to pay for their homes and it seems they eventually regret that.  The reason this isn't a good idea is that even if you follow one of the various options for using money from a retirement account to avoid taxes and penalties - say withdrawing from a Roth or borrowing from a 401k, you’re still giving up years of compounding returns on that investment.  It's better to wait until you have the 20% down payment and you’re also able to save or invest 10-15% of your income before you buy a home. 

Another reason is that millennials also underestimate the costs of living and maintaining their homes after they buy them.  Obviously things like heating and electric bills, but also the time and money for mowing the lawn, fixing a leaky faucet or replacing a worn out cooling system.  That’s why we recommend figuring at least 35% of your take-home salary for your total home costs. You can’t call the landlord anymore to fix the plumbing anymore so be careful not to buy too much house. And, of course, an emergency fund is also critical.

Finally, millennials had second thoughts about the home itself.  Some found damage they didn’t know about before moving in and others realized the layout or size didn’t work for them.  So it’s important to be sure the home is the right fit— and then of course always get a home inspection before you sign the mortgage papers. Nobody likes surprises after they buy a house.

Next, Rob and Steve tackle listener questions at 800-525-7000 and via email to on these topics:

  • If you recently pulled some money from your retirement to pay down a mortgage, was that a particularly wise move?
  • Which college savings program allows you to invest in what you wish?
  • If your mom is looking for a home but is single, has about $80,000 plus the proceeds from her current home, what's a good choice for a new place?
  • If you're in good shape debt-wise, what's a good-rule of-thumb on having money held back for emergencies?
  • If you have 4 credit cards that total about $30,000, will it affect your credit rating if you cancel 2 of them?
  • If you're recently married, really wanna buy a house but your second guessing that now  can put 
  • If you and your spouse own a house but owe a good bit, he has a retirement program and you're listed as beneficiary, is there a need to have a will? 
  • Is participating in the Arorns App a good idea?

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