Real estate experts have been trying to predict when millennials will enter the housing market for quite some time, and for good reason. Millennials make up the largest generation in the U.S., comprising one-third of the nation’s population in 2013. Their entry into homeownership is pertinent to the market, because as younger generations purchase entry-level homes, sellers can upgrade.
So in an age where mortgage rates are historically low and rental inflation has skyrocketed, why aren’t millennials buying?
Millennials want affordability.
Millennials are spending-savvy, especially when it comes to their home purchase. After seeing parents reel from the recession and facing the repayment of their own student loan debt, millennials want affordable, budget-friendly houses without going into their maximum approved price point.
How they’re missing out: Homeownership has never been more affordable than it is today. Low mortgage rates coupled with mortgage insurance rate reductions and extensive-option loan programs have made homeownership extremely accessible for homebuyers, especially first-timers.
For instance, with the average mortgage rate in the 1990’s was 8.12%, meaning the principal and interest payment for a $200,000 home would be $1,484. With an interest rate of 4.04%, that same house would cost today’s homebuyer $959 in monthly principal and interest.
Millennials are wary because of student loan debt.
According to the National Association of Realtor’s 2015 National Housing Pulse Survey, 86% of millennial respondents said that too much debt from college and students loans is a medium obstacle.
How they’re missing out: Roughly 40 million Americans owe more than $1.2 trillion in combined student debt, but while student debt does impact homeownership, it’s not as much as you’d think, according to a Zillow study. The study found that “as long as people complete at least a four-year degree, the effect of student debt on their chances of owning a home is negligible”.
Millennials are unaware of what it takes to buy a home.
Several studies have surfaced noting that a lot of U.S. consumers are simply unaware of what it takes to get approved for a mortgage, in terms of credit score, down payment and loan programs. Millennials are taking these common mortgage misconceptions and self-dismissing themselves from homebuying.
How they’re missing out: While credit scores are a major component of mortgage approval, low credit score options are available. For instance, a minimum score of 620 is required by all mortgage loans delivered to Fannie Mae. Currently, Compass Mortgage has the ability to finance FHAloans with credit scores as low as 560.
Additionally, down payment requirements are not what they used to be. A Bankrate survey found that nearly 20% of non-homeowners said that a down payment between 11% and 20% was needed for a home purchase. Currently, there are several loan programs that could benefit millennial homebuyers with little to no down payment requirements.
Millennials desire urban amenities.
According to REALTOR Magazine, one of the top desires millennials want in a living space is access to urban necessities and entertainment. With that need, many millennials have the mindset that renting is the better option for amenity accessibility.
How they’re missing out: Even for millennials who desire to be in a larger metro, homeownership is still the cheaper option. According to Trulia’s Millennial Rent vs. Buy report, homebuying is cheaper than renting in 98 of the U.S.’s largest metros.
Millennials are off-put by the competitive housing market.
According to Forbes, increasing demand for houses could be keeping Millennials out of the market. With a low inventory and an increasing amount of homeowners, many millennials may be wondering if they can compete with all-cash buyers, even if they’re pre-approved for a mortgage.
How they’re missing out: At Compass Mortgage, we offer home financing with cash-offer power. Meeting with a lender should be any homebuyer’s first step in the purchase process. A pre-approval is the traditional route taken by homebuyers to convey to a seller that they are a serious homebuyer, but a loan commitment takes the pre-approval process a few steps further…and ups the ante.
A loan commitment allows homebuyers to present the best offer on a property, especially in multiple-offer situations, gain peace of mind and act quickly on their purchase.
For more information about buying your first home, download our free Mortgage 101 Handbook.
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