Millennials Do Want to Be Homeowners — But It’s Not That Simple

Written by Posted On Monday, 16 December 2019 09:08

Making fun of millennials is all but a national sport, at this point. They’ve been accused of “killing” the traditional workweek, the classic dinner date and even cereal. 

 But despite what you may have heard, millennials do, indeed, want to become homeowners — though they face challenges that may keep them from realizing that dream as quickly as they hope to. 

The demand is there

According to the most recent data from the National Association of Realtors, millennials actually make up the largest share of homebuyers, accounting for 37% of the market. And a tendency to marry later in life isn’t limiting them, either — nearly a quarter of millennials who responded to a recent survey hope to sign a mortgage before they sign a marriage license.

That said, young, first-time buyers face obstacles that keep them from realizing their dream of homeownership – and according to some studies, many of those who do take the leap find themselves regretting their decision.

4 challenges facing millennial homebuyers

So if millennials are so eager to be homeowners, what’s stopping them?

 Here are just a few of the challenges they may face.

Saving for a down payment

Even if you’re earning good money, a five-figure down payment is a big savings goal — especially when you’ve still got rent to pay. 

Other debt obligations (ahem, student loans) along with fewer years to save may be the reason millennials tend to make smaller down payments than other generations. According to one study, millennials tend to put down just 11% on a home purchase, whereas buyers across generations stick with 20%. 

The fix:

While any down payment can be hard to save up for, follow in other millennials’ footsteps and opt to put down less than the traditional 20%. Putting up a smaller down payment is possible, especially through government-backed loans provided by FHA-approved lenders who can offer mortgages with down payments as low as 3.5%. Also available are the Fannie Mae HomeReady and Freddie Mac’s Home Possible programs. These are programs that offer conventional loans to first-time homebuyers that only require a 3% down payment.

Strategies that can help you contribute more toward your down payment include saving your tax refund, opting for a savings account with a better interest rate, picking up a side hustle or getting serious about budgeting.

Remember to shop around for a mortgage for the best possible rates, as opposed to going with the first lender you encounter. But if you aren’t in a rush, work on improving your credit history and earnings to help qualify for better terms. 

Homes are expensive (and hard to come by)

While buying a house is always a significant investment, the cost of homes has risen considerably since boomers arrived to the market. The median cost of a new home was about $23,000 in 1970, or about $153,000 in 2019’s dollars. 

Meanwhile, the median cost of a new home today is closer to $300,000.

One reason? In many markets, it’s pretty hard to come by homes for sale at all — let alone ones set at affordable “starter” prices. 

Housing inventory has been consistently falling month over month since August of 2019, according to the most recent data from Realtor.com. What’s more, many entry-level homes have been scooped up by investors who turn them into single-family home rentals, further edging young buyers out of the market. 

The fix:

Looking for affordable housing means more than just moving from the city center to the suburbs in today’s market; after all, even homes an hour’s drive from San Francisco often cost more than a million dollars.

But if you’re willing to go rural, you’ll benefit not only from a lower home cost, but also generous mortgage terms if the house you’re interested in is qualified for a USDA loan. You could also consider foreclosed properties – but given their unknown history and the commonality of “as-is” clauses on these homes, you may be on the hook for repairs and renovations.

Managing other debt 

If you’re talking to millennials, it doesn’t take long for student loans to come up — and they’re not complaining for nothing. Average student loan debt among the demographic hovers above $30,000 per person, and that’s not the only bill they’re facing.

The 2018 Planning & Progress Study from Northwestern Mutual suggests millennials are burdened with as much as $36,000 in personal, non-mortgage debt on average, with the second-biggest culprit — behind student loans, of course — being credit cards. 

The fix:

 It’s a whole lot harder to meet savings goals when you’re constantly battling the cost of interest. Working down debt totals through the snowball or avalanche methods can help make you a more qualified (and comfortable) buyer.

Lack of dual income 

As mentioned above, many millennials want to buy a home before they get married — and they’re getting married significantly later than their parents and grandparents did. Although casual relationships (read: “friends with benefits”) are definitely popular among younger generations, studies also show millennials are taking time to get to know one another before tying the knot.

But one benefit of tying the knot, for many couples, is joining finances — and having two incomes is better than one when it comes to trying to save up a five-figure down payment.

The fix:

Though it may look like a way to extend the “party” phase of early adulthood, the marriage delay actually seems to be lowering the divorce rate.. When you wait until you know what you want (and have your finances together), perhaps marital bliss is a little easier to achieve.

So while we’re not suggesting you rush into anything official, keep in mind that teamwork can go a long way toward big goals, including the purchase of a home. But if you’re not ready for that level of commitment, you’re probably not ready to sign a mortgage together; it does literally mean “death pledge,” after all.

Rate this item
(0 votes)
Callie McGill

Callie earned her B.A. in Advertising from Penn State University and her work on personal finance and housing related topics have been published on Yahoo! News, MSN, Mashvisor and more.

https://www.lendingtree.com/

Agent Resource

Limited time offer - 50% off - click here

Realty Times

From buying and selling advice for consumers to money-making tips for Agents, our content, updated daily, has made Realty Times® a must-read, and see, for anyone involved in Real Estate.