There is a common misperception that millennials don’t want to be homeowners. The reality is most millennials want to own a home, but falsely believe they can’t afford to own one or pay the down payment.
The median age of first-time homebuyers has historically been unchanged at 30 to 31 years of age. With two-thirds of millennials younger than 31 and 22 percent under 25, it’s easier to see why many millennials aren’t buying homes yet. A 2014 survey by Fannie Mae found that a majority of millennials find home ownership to be more sensible than renting for financial and lifestyle reasons. In the same survey, 49 percent of millennials who were renting said their next move is to own a home.
A majority (57 percent) of millennials in this Fannie Mae survey named a financial reason for not buying a home. The number one answer given is that they are renting while financially preparing for homeownership. Many millennials perceive renting is more affordable and that they can’t obtain a mortgage. Millennials feel that they lack a sufficient credit score or history, can’t afford a down payment or closing costs, have insufficient income or too much debt. The reality is interesting.
The median income for a millennial older than 25 is $38,220 and two-thirds of millennials meet the industry standard minimum 620 credit score. Recent studies also show that, with an estimated monthly principal and interest payment of $945 for a $190,000 loan, the average millennial would have a debt-to-income ratio between the 28 percent to 36 percent range that most lenders prefer when considering mortgage applications. At current rates, with a 30-year amortized loan, a payment of $945 can afford a buyer a $190,000 loan on a $195,000 home. This is considerably more affordable than rent even with property tax and insurance escrows included.
A stunning 73 percent of renters aged 18 to 34 surveyed in a 2015 Fannie Mae study indicated they were unaware of 3 percent to 5 percent down payment loans versus the traditional 20 percent down loans. FHA loans require only a 3.5 percent down payment and Fannie Mae and Freddie Mac are offering loans to first-time homebuyers as low as 3 percent down. Most millennials who want to buy can afford it now, but the majority are unaware of their options.
If you know a millennial or have one living with you, and you want to help them start their independence, direct them to a good lender recommended by your Realtor.
By Kurt & Sheila Johnson, contributing writers and top-producing real estate team from Towne Lake. www.kurtandsheilateam.com