Question: We are about to buy our first home. The loan officer was referred to us by our buyer’s agent. They are pushing us to buy at our maximum purchase amount. I find this unwise. To make me feel comfortable, they say, “Don’t worry. Your income will grow over the years.” That’s not a good argument for stretching our finances. My husband and I were children during the Great Recession. We saw our parents struggle as “distressed sellers.” 

My in-laws lost their house to foreclosure after my father-in-law lost his job. They never recovered financially. As home values plummeted, my parents lost their house’s 25% down payment. After selling with bank approval in a “short sale,” we moved in with relatives.  

We are not the only millennials who lived through a housing bust. Besides losing a job and housing value plummeting, what are other unexpected financial risks to homebuying?

 

Answer: If one is buying a single-family home, maintenance is a surprising expense. Let’s list a few of the costs that surprised new homebuyers:

• Failing components such as roofs, garage doors, fences, plumbing, electrical or appliances can be costly.

• Drainage issues can adversely involve the foundation, driveway or hardscaping.

• Aging trees is a significant expense — especially pruning.

• Nowadays, aging sewer lateral lines are catching new homeowners off guard. The first indicator of an issue is restricted plumbing flow from the house. A National Association of Sewer Service Companies (NASSCO) certified inspector can best determine the extent of the damage. View (https://nassco.org/). The cost will vary in the thousands to tens of thousands of dollars. The expense will differ on the length of the 4-inch line removed and replaced.

If one is buying a condo or townhouse-style home in a common interest development (CID) :

• The condominium homeowners might have to pay a special assessment. These are one-time emergency costs to replace roofs, siding, elevators, balconies, hardscaping, et cetera. The homeowner association budgets need more funding for surprise costs.

• Sharp increases in monthly fees are a real surprise. Underfunded homeowner associations (HOAs) in California are common. The (HOA) raises the monthly price to replace the depleted cash reserves. It usually happens after the HOA hires new management.

• The HOA members have to pay to replace their broken appliances. However, balconies, roofs, exterior siding and paint, aging trees, et cetera, are usually the responsibility of the HOA.

A common tactic for homebuyers is to buy below their limit. Loan officers often promote buying at one maximum price range. It is only sometimes to line their pockets. It avoids buying up in five to seven years. In other words, they are now stretching their finances to buy the townhouse instead of the condo. Or purchase a two-story house instead of a one-story home. Conversely, after consulting with a loan officer, many homebuyers have told me, “Pat, we want to take a vacation once a year and occasionally go out to dinner.”

Real estate economists have commented that millennials were in no hurry to be homeowners. After all, many lived in distressed properties during the Great Recession. They witnessed their parents struggle. Tell your real estate team you are lowering your price range. Then book your next vacation.

For Housing Market Data in your area, visit Pat’s webpage for trends here. Do you have questions about home buying or selling? Full-service Realtor Pat Kapowich is a Certified Real Estate Brokerage Manager and career-long consumer protection advocate. He is based in his hometown of Sunnyvale, California. Office: 408-245-7700; Broker# 00979413 Pat@SiliconValleyBroker.com