Millennials have been often called the “renter generation,” but new research is showing that millennials are fast becoming the greatest “home buying generation” ever. Already more than one-third of millennials are homeowners, according to the National Association of Realtors.
More importantly, says Fannie Mae, as millennials are getting older, they are starting to buy homes at a faster pace than any previous generation. Researchers are proving that much of the talk about millennials and their inability or lack of interest in becoming a homeowner is simply not true.
Here’s a closer look at how the experts are busting the five biggest millennial home buying myths:
Myth #1: Millennials don’t want to buy, they want to rent
It turns out that millennials are renting, but not by choice. One study shows that 84 percent of 18-34 year olds who are currently renting say that they intend to buy a home even if they currently are unable to afford one. Research by the National Association of Homebuilders (NAHB) puts the number even higher, finding that more than 90 percent of millennials say that they eventually want to buy a house. In fact, for the fourth consecutive year millennials are the largest group of home buyers among all generations (34 percent), according to the NAR 2017 Home Buyer and Seller Generational Trends Study.
Moreover, 48 percent of millennials surveyed by Harris Poll for NerdWallet said they plan to buy a home in the next five years, and they are much more likely to do so than other generations
Myth #2: Millennials can’t afford a down payment
While many millennials have not saved enough for a 20 percent down payment, the fact is there are many low-down payment mortgage options for millennials. One big problem is a lack of awareness of this fact: 21 percent of all millennials think you must have exactly 20 percent for a down payment to buy a home, a Harris Poll study found. Twenty-four percent of millennials think 6 percent to 10 percent for a down payment and another 23 percent of millennials think you need more than a 20 percent down payment.
Yet one of the oldest home loan programs around, FHA, allows a buyer to put down less than 5 percent as a down payment. Fannie Mae and Freddie Mac also have low-down payment programs for first-time home buyers, with down payments slightly lower than FHA. For veterans, people buying homes in rural areas, and in certain states, there are other special loan programs for qualified millennials that require no down payment.
There are other ways to tackle the down payment challenge as well, as many millennials have discovered: help from mom and dad. There are ways parents can help with the down payment and there are loan programs that allow the parent to be a co-borrower on the loan without occupying the property. The key is for a millennial to meet with a Mortgage Advisor to learn about all of their options and to figure out a game plan that works best for their particular life plan.
Myth #3: Millennials won’t want to use a real estate agent
The theory is since millennials are digital natives, they will want to do everything online, including buy homes, right? Wrong. Three-quarters of all millennials (75 percent) say they prefer working with a local real estate agent over an online agent, according to a survey by financial wellness website CentSai for more than 2,000 Americans, ages 18-24. Why? The respondents cited a desire for face-to-face collaboration, associating it with greater ‘handholding,’ ‘local knowledge,’ ‘longstanding relationships,’ and ‘personal touch,’ RISMedia reported.
The NAR Generational Report shows millennials already are the heaviest users of real estate agents: 89 percent of millennials, 87 percent of Gen X buyers, and 85 percent of younger boomers purchased their home through an agent last year.
Myth #4: Millennials can’t buy a home because of student debt
While we know that some millennials are unable to buy homes because of their student debt, this is not a universal truth for all millennials. NAR researchers note that 46 percent of buyers age 36 and younger with debt, reported a median student loan balance of just $25,000. The fact is 44 percent of all millennials last year who bought homes had student loan debt at the time they purchased a home.
Again, one of the challenges, the experts say, is that millennials may be delaying buying a home because they believe they will not qualify until they pay off their student loans. They do not realize the difference on how debt is calculated when qualifying for a home mortgage and that’s another good reason why they need to sit down and talk with a Mortgage Advisor.
Fannie Mae is trying to help as well. Back in April, the mortgage giant announced new rules that included a change to the formula that lenders use to calculate a borrower’s debt-to-income ratio. This is one of the ways lenders gauge one’s ability to afford a monthly mortgage payment. Previously, lenders had to calculate one’s monthly student-loan payments as 1 percent of the total student loan balance. Now, lenders can use the actual student-loan payment amount, which may be lower than 1 percent, and that means many more millennials are expected to qualify for a mortgage.
Myth #5: Millennials only want to live in the city
Almost 50 percent of millennial homeowners actually live in the suburbs and about 20 percent of millennials live in a rural area. Only a little over 30 percent live in urban neighborhoods, says a new study by Zillow. According to Jeremy Wacksman of the Zillow Group, “We’re finding that they are more similar to older generations than many thought.”
Millennials need to live in the suburbs, as they want bigger homes: nearly 2,400 square feet, on average, according to a March 2016 NAHB tracking survey. By comparison, for baby boomers, the average desired new home size is less than 1,900 square feet, and for all homes, about 2,200 square feet. The NAHB says that nearly half (48 percent) of the millennials they surveyed want four or more bedroom homes.
Jim DeMarco is Branch Manager of the Seattle, WA office for Opes Advisors, A Division of Flagstar Bank. With over 14 years in the financial services industry, he is responsible for leading, managing and coaching a team of sales and service professionals to ensure the operational excellence of the branch and create an excellent customer experience.