Tips For Millennials Buying a Home
For the 7th year in a row, millennial homebuyers clocked in as being the number one generation for buying homes. According to some recent data, 43 percent of homebuyers in 2022 were millennial, an increase from 37 percent the previous year. And of the total first time home buyer home-purchases, 72 percent of them were millennials.
Yet, millennials also seem to be stepping into home buying at an older age than previous generations. The average first time homebuyer last year was 36 years old. And only 49 percent of millennials actually own their home. This means that over half of millennials are still renters!
This shouldn’t come as a surprise though. The millennial generation grew up during the economic meltdown of 2008, and graduated or entered adulthood in the great recession. For a majority of their lives, there has been some sort of economic turmoil or financial hardship. Reasonably, any homebuyer would pause when given these facts.
Finances also certainly account for the hesitation. Millennials hold record levels of debt. Though most millennials have decent income, they do not have decent savings.
Let’s dive into the top questions and obstacles we see when discussing homeownership with millennials.
Considering finances
As stated, millennials as an aggregate are earning decent incomes. However, most are still living paycheck to paycheck. Meaning, they are unable to make headway in terms of saving. The biggest factor to this is the heavy load of debt most millennials carry.
For millennial home buyers, the most significant obstacle is usually student loans. Over 44 million Americans are still struggling to pay off the debt of over $1.6 trillion. As of 2019, the average graduate has over $35,000 in student loan debt.
This doesn’t even begin to cover typical car debt and credit card debt that many have on their credit report as well.
Tip - Student loan debt is now calculated differently
With student loan repayment still on pause nation-wide, there are different rules for how mortgage lenders must calculate student debt as it related to their debt-to-income ratio.
Previously, lenders had to use the payment reported on a borrowers credit report, or 1 percent of the total loan balance if the loan payment reported at $0. That has changed. The new rule is now to use .5 percent of the student loan balance against their debt to income ratio.
For example, under the previous calculations, if a person has $100,000 in student loan debt, the amount reported would be $1,000. Now, the amount used is $500. That goes a long way when looking at home affordability.
Tip – Talk to a lender first
Talk with a lender about your financial situation in order to get an idea of your goals to hit before buying a home. In some cases, a buyer may just need to pay off a few small things in order to qualify. But each situation is unique.
Tip - Consider downpayment assistance options
There are a plethora of downpayment assistance programs designed to help homebuyers, especially first-time homebuyers, afford their home. There are also loan programs that have lower requirements for how much money must be put down. In some cases, such as with the USDA loan, no money is required to be put down as all.
Considering lifestyle and type of property
The standard timeline for buying a home used to be sometime after marriage. That tradition, though not entirely gone, seems to be making its way out the door.
Among first-time buyers, 18 percent were unmarried couples, the highest ever recorded. 17 percent of homebuyers in general were single females and 9 percent single males. Also the highest recorded.
In other changing traditions, Millennials are the first generation to have remote work and travel the most with their job. This means more potential time away from home.
Tip - Deciding on what type of housing makes the most sense is essential for a millennial home buyer.
One of the decisions you will likely face as a potential property owner is whether a condo or a home is a better buying decision based on your current life circumstances and housing needs.
The decision to purchase a condo or townhouse vs. a single-family home is usually one of the top considerations for a millennial home buyer.
Do you travel a lot and don’t have time for property maintenance? Do you have kids who need a yard to play in? Are you likely to want a garden? Are you interested in perks like a pool or a gym you can’t reasonably afford?
What does this mean for real estate professionals?
Millennials are the most likely to use the internet to find a home, and, interestingly, the most likely to use a real estate agent.
Despite the struggles and setbacks millennials have had in home buying, real estate professionals cannot ignore this population. Since they are the largest group of homebuyers and the most likely to use a real estate professional, real estate agents would be wise to learn about how to best assist this large home buying group.
