Are Millennials Buying Homes?
It’s widely known that the millennial home-buying rate has been a little sluggish compared to earlier generations, but a positive shift in the housing market in recent years has allowed more millennials to buy homes.
Trends show that millennial homeownership rates are rising quickly. According to the National Association of REALTORS®, millennial homebuyers account for 43% of the market—a 37% increase from the previous year—and they’re nearing the home-buying rates of baby boomers and Gen X as their generation continues to mature. Though current trends favor hopeful millennial homebuyers, not every millennial can make strides toward their homeownership goals.
Millennial Homeownership: What Are the Roadblocks?
Student Loan Debt
Higher education has never been more expensive than it is today, and high tuition rates have wreaked havoc on millennials’ homeownership opportunities. With constant tuition hikes and increasing inflation, countless millennials turn to student loans to fund their futures. For many millennials, the impacts of student loans on their home-buying potential have been crippling.
Around 83% of millennials who don’t own their home cite student loan debt as the greatest barrier to homeownership. Why? Because student loans negatively affect homebuyers’ saving potential, ability to meet monthly mortgage payments, and even the ability to qualify for a mortgage due to higher debt-to-income ratios (DTI).
How Student Loan Forgiveness Could Impact Homebuyers
Student loan forgiveness is a rare opportunity that would free many borrowers from the burden of repaying part or all their federal student loan debt. This beneficial government program could help some millennials put their newly accumulated funds toward saving for a down payment or help potential borrowers lower high debt-to-income ratios and improve their credit.
Home Affordability is Tougher
Higher home prices and down payment requirements will quickly turn a potential buyer away from buying a home, especially when it comes to millennials.
For years, the home-to-price income ratio has been much higher than in earlier generations. In 1985, when the average baby boomer reached age 30, a typical single-family home would cost only $82,800. Compared to the average $313,000 home price that a 30-year-old millennial would face in 2019, earlier generations had much easier entrance into the housing market.
Hopeful millennial homebuyers often struggle to afford down payments in the current housing market. For example, the average millennial would have to save every bit of their disposable income for four consecutive years to have enough for a 20% down payment on a median-priced home.
Millennials Are Marrying Later
Two incomes are often better than one, which is why married couples are more likely to be homeowners. As millennials tend to remain single and opt to marry at a later age, their homeownership chances are stifled due to a singular income stream that isn’t enough to support the purchase of a new home.
While there is nothing wrong with being single as a lifestyle choice, it often delays millennials’ first home purchase compared to earlier generations that tied the knot much sooner.
Rent is Expensive
The continued climb of high rent prices also hinders a number of millennials from entering the housing market. While renting does not prevent every millennial from buying a home, it makes it increasingly difficult for many to save the money they need to enter the housing market.
Lending Standards Are Stricter
If lenders sense economic instability, lending standards typically become more stringent to reduce the risk of default. This can slow the millennial homeownership rate and makes preparation when applying for mortgages a requirement. Millennials who want to become homeowners should look into preapproval and understand how it differs from prequalification before beginning the mortgage application process.
Credit Could be Better
Poor credit history and credit scores often negatively impact some millennials’ ability to buy a home. Because millennials came of age during tougher economic circumstances, they may be hesitant to—or incapable of—making larger purchases that would affect their credit. This is especially true when debt is on the table. Previous economic trauma makes it more likely for millennials to use non-credit means of making purchases when they are sure they have the funds available.
But, in order to buy a home, lenders need to see an individual’s credit history to better access risk. If hopeful homeowners have little to no credit (with a high DTI from student loan debt) or exceedingly poor credit, their chances of receiving a home loan are slim.
Tips For Millennial Home Buyers
With multiple home-buying barriers present, many millennials may think homeownership is out of the cards for them. However, with proper planning, millennials can join other generations and become homeowners. Here are a few things you can do to make homeownership happen:
- Pay off your debt. Improving your debt-to-income ratio can help lenders see you as a candidate for a home loan and prepare you for future monthly mortgage payments. If you can, pay off substantial student loans, auto loans, credit cards, or other debt that might be weighing you down. Track your monthly debt payments so you won’t get behind or incur extra interest or fines. If you already have lots of debt, limit credit-paid purchases.
- Build your credit. Lenders use creditworthiness to determine whether they want to issue you a home loan. If you haven’t been building your credit, you can start by opening a credit card, making your credit card payments on time, and purchasing items with your credit card that you know you have the funds for.
- Save for your down payment. Down payments are important if you want to buy a home. Many need to save money before they have enough to meet a down payment requirement. Millennials who want to become homeowners should save money whenever possible to put it toward a potential down payment and other home-buying costs. If you struggle with saving money, consider creating a budget that suits your financial needs.
- Know your options. Numerous loan and lender options are available—and they aren’t one size fits all. It’s crucial for millennials who want to purchase their first home to do the research before making any final lender or home loan decisions. If you’re looking for a place to start, MortgageRight’s preapproval program can help you find the right loan option to fit your unique home-buying needs.
- Research the housing market. Don’t go into homebuying blind. Learn all you can about the current housing market and predicted market changes before making hard and fast home-buying choices. Brush up on real estate trends so you can make the most informed decision possible.
Millennial Homeownership is Achievable
The rising share of millennial homebuyers proves homeownership is a milestone millennials can achieve if they set themselves up for success and choose the RIGHT lender for their needs. Are you looking for a lender with money-saving programs and expert assistance? We can help! Contact us today to start your home-buying journey!