August 2, 2018
For the millennial generation, many are of or almost to the age where homeownership is no longer a far-off dream. The thought of buying your first home – at any age- can seem overwhelming and intimidating, and there are so many existing myths, assumptions and unknowns to wade through. Step one in the journey is to take a look at some of the misconceptions that millennials may have and get a firm understanding of what the reality is.
“I don’t have enough money for a down payment."
A recent study conducted by Harris Poll showed that 44% of millennials believe you need a down payment of 20% or more to buy a home. This 20% myth has been around for a while, but there are several low- and even zero-down-payment loan options available. For example, Federal Housing Administration (FHA) loans allow for down payments as low as 3.5%, while other programs offer down payments of 3-5%. Additionally, VA Loans offer veterans and military service members mortgages with zero down payment. Lack of a down payment should never hold you back from buying a home.
“I don’t have the right credit score.”
Credit score can have a large impact on both your ability to qualify for a loan, as well as what interest rate you’ll be eligible for. It’s a crucial factor when it comes to fiscal health, however not all millennials even know how to go about improving it, or what it means either! According to a Lend Edu study, only 17.23% of millennials knew that you could increase your credit score by decreasing credit utilization, with 43.69% believing that the way to increase your score is to increase credit utilization. Whether or not you’re ready to take the plunge on homeownership, it's never too early to start thinking about your credit score. The first step is to determine what your credit score is, which you can do by requesting it from annualcreditreport.com. It’s free to request once per year, and is the only site authorized by the Federal Trade Commission to provide free credit reports.
“My student loan payments are too high.”
With student loan debt hitting the $1.5 trillion mark and taking its place as the second largest form of debt nationwide, it can be a huge financial burden for millennials. According to the Federal Reserve, 42% of those who have attended college acquired some amount of debt, and the average student loan debt for the class of 2016 in Massachusetts is $31,563. Many assume that the amount of debt they’re carrying means they won’t qualify for a mortgage, however that isn’t necessarily the case. The types of loans and whether they’re currently being repaid or deferred are also influencing factors.
“I don’t want to be tied down.”
Millennials are an experiential generation, and place a high value on being able to travel and explore new things. MMGY Global’s Portrait of American Travelers states that, while most generations will be scaling back their travel spending over the next 12 months, millennials plan to increase in this area. In 2017, millennials took, on average, 3.5 vacations and 35% plan to take more. While purchasing a home is a big commitment, it doesn’t have to signal the end to your adventures. Many unmarried millennials that purchase a home do so with the intention of having roommates, meaning that part of the mortgage and utilities will be covered and more money can be set aside for savings or trips. Though some types of mortgages require the home to be owner-occupied, others do not. If your loan allows for tenants, you could consider renting out a room or doing short-term rentals while you backpack through Europe.
Generations, millennials included, are often lumped into somewhat narrow categories of traits and characteristics, but that can be stereotypical. Whether you’re an “elder” millennial, on the tail end almost into Gen Z, or somewhere in the middle, your path to buying your first home is going to vary greatly and be influenced by many factors other than your generational title. If you take the time to educate yourself on the process, and work with trusted realtors and lenders, you’ll be posing in front of your new front door in no time!