Millennials are expected to form 20 million new households by 2025, which indicates a major shift for many 18-34-year-olds from renting to owning a home. Typically just first, last, and security deposit are required for renters to secure a place. But purchasing a home requires a significantly more intense upfront commitment, including money for:
- A down payment
- Private mortgage insurance
- And other closing costs.
Despite the extra financial burden, millennials are still on the path toward homeownership. According to Zillow, as of Q2 2018, the homeownership rate among those under the age of 35 jumped to 36.5 percent. This is the largest level since 2013, and up actively from 35.3 percent in 2017.
74% of millennials agreed that owning a home increases their standing in the local community, 69% percent said owning a home is a key to higher social status, and 67% reported owning a home is necessary to live the American Dream. If those stats tell us anything it’s that the dream of homeownership is still alive and well for many millennials, it’s just taking a little more creativity and flexibility, along with a healthy dose of patience, to get there.
Know the weak points in your finances
Many millennials think that their student loan debt and tight credit make the possibility of homeownership unfeasible. According to the Federal Reserve Bank of New York, in 2018 outstanding student loan debt comes in at a simply staggering $1.4 trillion. In fact, the strongest impediment for millennials is student loan debt, which largely accounted for the drop in homeownership for this age group between 2007-2015.
So how are millennials overcoming their student loan debt to buy a home? A large part of it is understanding repayment options and applying for options that are most suited for your needs, like pay as you go or consolidating loans.
Sure, it would have been helpful in school if we were taught more crucial life skills like the ins-and-outs of federal loans and well, taxes, but millennials are taking it upon themselves to be educated and face their finances head-on. The sooner you face the music and formulate an organized plan, and you can be on your way to buying a home. After all, student debt might slightly delay your transition from renting to purchasing, but it is not likely to derail it completely.
Define your goals
Millennials that succeed in buying a house scrutinize their finances and project what’s feasible before entering the search. Being educated and prepared means considering a variety of factors before even approaching the actual search:
- The length of a work commute you are comfortable with
- Availability of public transportation
- Location prices (urban vs. suburban)
- If a family is an eventual goal, consider the schools in the area
- Characteristics of the local community
Making a list of priorities means you can approach the home buying process with a clear head and avoid overspending. Often during the process emotions take hold, and it is easy to lose sight of the factors that matter most. Keep these written down and review them so you won’t be swayed or seduced by elements that are not actually on your list.
Understand what cities are affordable
According to SmartAsset, millennials are not moving to the large and expensive urban cities they’re rumored to love. In fact, on the list of most popular cities for millennials to move to in 2018, New York City and Los Angeles do not make an appearance. Millennials are managing their expectations in regards to what’s an affordable lifestyle and what’s not. The winners? Well, you may be surprised:
- Seattle, Washington
- Columbia South Carolina
- Sacramento, California
- Minneapolis, Minnesota
- Jacksonville, Florida
It may be possible to balance student loans, a mortgage and enjoy being a homeowner, but it does require homebuyers to be realistic about city costs– a millennial homebuyer is more likely to transition from renting to buying in Columbia South Carolina than the center of New York City.
Think outside the box
Let’s be real- millennials have a bad rap. From the media to your grandparent’s Thanksgiving table it seems that criticism of the 18 to 34-year-old age group is free for all. But do not let the negative criticism get you down, it’s not all true. Millennials have brought a unique set of needs to the table and thus caused a revolution of sorts throughout a variety of industries– from travel (Airbnb) to transportation (Uber or even Bird scooters) to mortgages (Morty). Many processes have been made more transparent and navigable, and the housing industry has not been immune to these shifts.
Millennials are more likely to patiently wait and find the right home, rather than feel pressured to buy. They are not the avocado-toast-loving-living-at-home-with-parents group they’re so rumored to be. What has emerged is an intelligent, determined and downright innovative group of people and nothing from student loan debt to slow income growth can stand in the way of their dream from transitioning from apartment-renter to homeowner.
Morty aims to make the process of obtaining a mortgage more transparent. We help homebuyers navigate the complicated process of finding and securing financing to buy a home. We work with our borrowers through the entire homebuying process, from pre-approval all the way to closing.