After years of waiting for millennials to start buying homes, it’s finally happening!
Millennials currently make up the largest share of homebuyers according to the National Association of Realtors, at approximately 37 percent of all new homebuyers. In particular, older millennials—those ages 29 to 38—make up the largest share of buyers who are married, at 69 percent, and are the most likely to have children under the age of 18 living at home, at 58 percent.
Their top motivating factors for purchasing include the desire to own their own home, the desire for a larger home, relocation for a job, a change in familial status (marriage, birth of a child, or divorce), and the desire for a home in a better location.
In addition to starting their families, this group has made good progress in their careers, earning an income that is significantly higher than the US median income. Older millennials have a median household income of $101,200, according to NAR’s report, and purchase homes with a median price of $274,000.
"Older millennials are now entering the prime earning stages of their careers, and the size and costs of homes they purchase reflect this," says NAR Chief Economist Lawrence Yun. "Their choices are falling more in line with their Gen X and boomer counterparts."
Roughly 1 in 3 millennials under the age of 35 owned a home as of the end of 2018, according to the U.S. Census Bureau. However, that’s 8 to 9 percentage points lower than previous generations’ homeownership rates at ages 25 to 34, according to research from the Urban Institute’s Housing Finance Policy Center.
Overcoming the Obstacles to Homeownership
Despite historically low interest rates, this group of young buyers continue to face lots of hurdles that didn’t affect previous generations. Prices are rising while the number of homes available is dropping. According to Zillow, starter home prices have increased by 57.3% over the last five years, while inventory has dropped by 23.3%.
A recent Freddie Mac survey of renters and homeowners shows that affordability issues continue to have profound impacts on all homeowners and renters. Specifically, Freddie Mac found that more than half of Americans needed to make changes in their spending or housing to afford their monthly housing payment.
The upfront costs of purchasing a home, including down payments and closing costs, are commonly rated by all renters as a primary obstacle to homeownership. Specifically, nearly nine in ten (88%) low-income renters said that having the money for a down payment and closing costs would be an obstacle to homeownership if they were considering buying a home.
Student loans and child care costs are also taking a toll on millennials. The Freddie Mac survey looked at how the common costs of everyday life impact renters and owners and found that a majority, 51%, of younger millennials (aged 23-29) who rent had to make a different housing choice because of student loans, compared with 38% of younger millennials who own a home. Low credit scores and high debt-to-income ratios are also cited by industry experts as common obstacles for these potential buyers.
Resources to Help Qualify for a Mortgage
But help is available for millennials that want to buy their first home. Here are a few people, places and things to research to get help.
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Check out HLP.Guru. Tech-savvy millennials can learn about the role credit plays in a home purchase, how to improve and how to apply for a mortgage loan with this new app. Created by nonprofit organization HLP, is a practical way for people to address their credit and debt issues to qualify for a mortgage loan. Using analytics, HLP.Guru can help people understand how to build their credit score and how much money is needed for a down payment.
In addition, a "guru" – a housing counselor with a nonprofit counseling organization, is available to help a person build a financial plan that will lead to qualifying for a mortgage loan. Visit the app at https://hlp.guru/
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Meet with a Nonprofit Housing Counseling Agency. Many of these organizations offer pre-purchase counseling and education workshops that teach prospective homebuyers everything they need to know to qualify for a mortgage loan. Topics include how to shop for a house, qualify for financing, select a REALTOR®, post-purchase maintenance obligations, how the closing process works and how to save for a down payment.
People completing a counseling session or an all-day, eight-hour workshop will usually receive a certificate that qualifies them for down payment assistance programs in many states. Make sure to work with an organization approved by the US Housing and Urban Development. To explore which agencies offer these workshops, visit https://apps.hud.gov/offices/hsg/sfh/hcc/hcs.cfm
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Down Payment Assistance Programs Available from Local & State Governments. These programs provide funds for low- and moderate-income people to purchase their first home. One way to find programs like this near you is Down Payment Resources (https://downpaymentresource.com/). By entering just a few pieces of information, it will show you programs in your area that you may be eligible to receive.
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Low Down Payment Mortgages through Fannie Mae and Freddie Mac. Both of these government-sponsored enterprises offer a conventional mortgage loan with a down payment as low as three percent for first-time buyers or lower-income home buyers. Payments can come from a variety of sources, including family, employer-assistance programs and secondary financing. And there are no income limits in underserved areas. To find out more, visit
https://www.fanniemae.com/singlefamily/homeready
http://www.freddiemac.com/homepossible/
Mark Cole is Chief Executive Officer of HLP, a nonprofit mortgage technology company based in Baltimore. HLP’s web portal is a one-stop technology solution to help homeowners nationwide ensure that critical documents from distressed homeowners reach mortgage companies. To find out more about HLP’s services, visit www.hlp.org.