With the economy on more solid footing, More Millennials are ready to strike out and buy their own homes. Nielsen expects Millennials to spend about $1.6 trillion on purchasing homes and an additional $600 billion on rent in the next five years. Of those Millennials surveyed, 80 percent said they either plan to buy a home or they already own one. This maturing market spells good news for the real estate industry, both in terms of a general desire among Millennials to own a home and the generation’s size. The Millennial generation comprises about 77 million Americans, or 24 percent of the U.S. population. It is roughly the same size as the Baby Boomer generation and seems to be on the verge of stepping into home ownership.
Saving for down payments remains a struggle for many Millennials. The NAR’s Generational Trends report revealed that about 97 percent of Millennial homebuyers in 2013 took on at least some debt to purchase their home. Their typical down payments were about 5 percent. In contrast, homebuyers belonging to Generation X paid 10 percent down and older adults paid 23 percent. Even the 5 percent down payment was a struggle for many Millennials. Twenty percent said that they had trouble saving for a down payment. Understanding how to get around substantial debt loads is often essential to working with Millennial homebuyers.
“There are some programs out there like FHA loans,” Huckeba said. “They’re a great alternative for first time homebuyers because they require a minimal down payment and you don’t need perfect credit to get one. There are opportunities out there, and there’s always the option of having the parents co-sign a loan.”
Debt loads presented a major obstacle to many homebuyers. Of those included in the survey, 12 percent said that they had difficulties buying a home because of their debts. Student loan debt was cited as the biggest obstacle by 56 percent of Millennials, followed by automobile loans for 38 percent, credit card debt for 30 percent, child care costs for 11 percent and personal health care costs for 8 percent.
About 42 percent of Millennial homebuyers said that it was harder for them to complete the application process and get approval for a mortgage than they had expected. About 96 percent chose fixed-rate mortgages. Conventional loans made up the largest percentage of mortgages for Millennials, at 46 percent. Federal Housing Administration loans accounted for 38 percent and Veterans Administration loans were attained by 7 percent.
Lenders are becoming more flexible in working with young clients, Hur said.
“I’ve work with a lot of Millennial clients who have student loans, and many of them have been able to defer their student debt, and the lenders are accepting their deferments,” Hur said. “If they can prove that they can defer the student debt, they’re able to borrow accordingly. They’ll have that burden to deal with later, but it’s one way to get into a home.”