Do You Have Time to Look for a Home and Shop for a Loan?
It depends! Home buying is a dynamic process, lacking the one-size-fits-all mentality and approach. However, a recent survey found the time it takes to look for a home and the associated loan fluctuates between generations, forming trends in terms of home buying tendencies. According to the survey, Americans spend 26 hours researching their home investments, but that number shifts when focusing in on specific age groups.
While every buyer is different, survey data reveals two key findings. One is Americans spend equal or less time searching for a home loan as compared to other “big” purchases, including cars and vacations. Second, millennial homebuyers tend to be more diligent in their loan search process than other generations because they have a higher barrier of entry.
Take a look at some of the inclinations in home research across generations, and Americans’ tendencies in researching assets outside of buying a home. Are you taking the necessary time to look for a home and shop for a loan or are you trying to get through the process as quickly as you possibly can?
Why Spend More Time Shopping for a Loan?
On average, Americans spend 8 hours of time researching home loans and receive four separate lender quotes. That is great if the quality of the search is high and those contacted are dedicated and motivated industry professionals.
Borrowers taking out 30-year fixed conventional loans can receive offers fluctuating by more than half a percent. For instance, a buyer of a $300,000 home could save more than $26,000 over the course of the 30-year mortgage if they shop around and opt for the lowest current interest rate.
In San Francisco, one of the priciest markets in the U.S., homebuyers searching at the median price point of $792,600 could save more than $43,000 by doing their homework and locking in at the lowest mortgage rate. But, diligent research and adequate time is typically required to scope out the best offer possible.
One in five survey respondents, or 18 percent of respondents, spend just one hour shopping for home loans. The reality is, if you do not spend enough time searching for the right home loan, you could be costing yourself thousands of dollars over the life of the loan. Even with that in mind, few probable homebuyers put in the necessary time commitment, regardless of how much a home loan costs in the long-term compared to some less expensive investments.
Millennials in the Home Search Process
Millennials (18 to 34 years old) spend more time researching and shopping for mortgages compared to both Gen X (age 35 to 54) and baby boomer (55+) buyers at 9 hours. Why the difference? Younger buyers face student debt and high rent payments, which can impact their ability to save. These financial obstacles force many first-time buyers to spend more time finding an optimal mortgage rate.
Further, more millennials lack homes in the entry level price point as compared to one year ago. According to Zillow’s Q1 report, entry-level inventory dropped 10.4 percent in the last year. Overall, there are 5.9 percent fewer homes for sale as compared to the first quarter of 2015. Those numbers are certainly on target in my area as buyers looking for homes in Warner Robins GA have a lot less inventory to peruse right now.
Millennials receive six quotes on average compared to four quotes by Gen X shoppers and three quotes by baby boomers. Younger buyers also compare rates more often, with 86 percent of young home buyers shopping around for a loan. In comparison, 75 percent of Gen X buyers and only 55 percent of baby boomers shop around before they settle on a lender.
What does all of this research tell us? Millennials spend a lot more time upfront ensuring they are ready to purchase a home. Some of that time can be attributed to them having less “free” funds available but it also shows they are diligent to seek out and find the best possible deal before making a firm decision.
Homes and Other Investments
Although millennials spend more time researching loan options, baby boomers spend the most amount of time overall in the home investment category at 32 hours. Gen X house hunters spend an average of 26 hours on their home investment and millennials spend 20 hours. The average cost associated with the home search process, comprising both loans and purchase price, is $184,600.
Americans spend more time investigating car buying and the same amount of time researching vacations compared to home loan shopping. Yet, the average home costs five times more than the average car and 80 times more than the average vacation. It is interesting and a bit perplexing as many consumers will keep their home a lot longer than any other purchase they will make in their lifetime.
With a car or truck purchase, Americans spend 11 hours of research. But, the average cost of a car or truck is just $33,666, while the average home loan equates to $147,680. Even though mortgage loans are more expensive, the average American prioritizes the car search process.
Like mortgage rates, the average American spends 8 hours researching major home improvements before investing. The average cost of a major home improvement is $49,240. In addition, the average vacation has a price tag of $2,788, but Americans spend the same amount of time exploring vacation options as home loans. Would you assume Americans allocate their research time this way?
Other investments require fewer hours than homes, cars, home improvements, mortgages and vacations and, coincidentally, run lower average costs. For example, minor home improvements around $700 only take up 4 hours of time across all generations. Computers, with an average cost of $1,299 a piece, take up 5 hours of research regardless of a buyer’s age. Televisions take up 4 hours, costing $1,244, on average. Mobile phones or tables run Americans $349 and take up 4 hours of research. Calling or data plans total $2,040 over the course of 2 years for the average American, yet buyers only put in 3 hours of research, the least of all investment categories.
Costs between investments differ, but data shows Americans do not put in the expected amount of research time for long-term investment costs. You might assume higher expenses equal more research, yet many speed through the process, especially in terms of home loans. While millennials lead the pack, cutting time on home loan research at any age can hurt your financial future.
Because consumers typically spend less time on their home purchases then they should, it is incredibly important they find and choose a local real estate expert who knows the market and will put the consumers’ interests first. Happy house hunting!
Additional Home and Loan Resources
Buyer and Seller Real Estate Tips via Flipboard
What Should Buyers Look for in Homes by Paul Sian
Signs You are In a Competitive Market from Kyle Hiscock
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