As more Millennials enter the housing market, a new study reveals this generation isn’t as well informed about the purchasing process as it should be.
An estimated 60% of Millennials, approximately two-thirds, are unaware of closing costs and what these additional expenses lend to the buying process.
The survey released by ClosingCorp, a provider of residential real estate closing cost data, involved more than 1,000 adults.
In addition to its revelation about adults in the 18-34 age bracket (Millennials), it also showed that across all ages, more than a third of prospective homebuyers are “not very” or “not at all” aware of the presence of closing costs.
Closing costs, paid by the buyer or seller, typically add up to about 2 to 5% of the total purchase price of a home. These costs are paid out when the title of a home transfers to a buyer to cover such purchase-related expenses as appraisal, inspection, home warranties and legal fees.
Most people, the survey found, learn about closing costs from realtors or their own research rather than lenders.
Educating the Masses
Brian Benson, CEO of ClosingCorp, points out the lack of knowledge about these costs and the overall buying process shows a need for more education to ensure buyers are entering the market with their eyes wide open.
As the Consumer Financial Protection Bureau makes changes to the disclosure process in 2015, Benson suggests real estate industry leaders should be proactive with education efforts to ensure buyers are better educated as they navigate the market.
Millennials’ Interest in Buying is Up
ClosingCorp’s revelation about lack of consumer education comes as more Millennials in their 20s and 30s are entering the home-buying market.
As rents continue to rise, Millennials are realizing that buying and building equity may make more financial sense than continuing to lease at high monthly rates.
The Zillow Housing Confidence Index released in March shows that roughly 5.2 million renters anticipate buying a home in 2015. That number is up from 4.2 million in 2014.
Zillow credits a number of factors beyond soaring rents for Millennials’ increasing interest in home buying. The company also points to the looming potential for interest rate increases later this year to drive more people toward ownership despite tight credit, limited inventory and down-payment requirements.
An improving economy and a lower unemployment rate among members of this generation may also help bolster the number of potential buyers, but the question lingers as to whether buyers will have the down payments they’ll need.
Regardless of the numbers of Millennials who ultimately transition from renters to homebuyers, ClosingCorp stresses the need for more proactive education for buyers.
“Whether they are researching a home on their own or getting help from an interested third party, the bottom line is that people need access to the correct information, and it needs to be simple for them to understand,” Benson said.
