With mounds of student debt and sky-high housing prices, millennials have certainly had the odds stacked against them when it comes to getting into the housing market. And after seeing their parents deal with the recession back in 2008 after which millions of Americans lost their homes, millennials have been nervous about becoming homeowners themselves.
While many Americans in this demographic have been holding off on buying a home, it looks as if they are finally starting to mark their territory in the housing market.
According to the Home Buyer and Seller Generational Trends Report, the largest group of buyers goes to the millennial generation. In fact, this is the third year in a row that millennials have taken the lead, which may not be hard to imagine considering they are also currently the largest generation in the US.
Younger adults have typically been renting after first moving out of their parents’ homes, and waiting to purchase a property until a little later in life. So why are they now entering the real estate market by the hoards?
Millennials Are Making an Effort to Save
For one, they’ve really been hunkering down to save for a down payment just as much as older generations have. They understand how over-leveraging on financing put many Americans in the path of foreclosure in the months leading up to, and following, the recession of 2008. As such, they’re working diligently to beef up their down payment in an effort to steer clear of negative equity.
Almost four out of five millennials are diligently saving an average of 8% of their monthly income, and over the past year, they’ve even saved more towards a 401(k) compared to baby boomers.
Not only that, millennials have started saving a lot earlier compared to generations past. On average, millennials start putting money away at the age of 22 years, compared to 27 years for Generation Xers, and 35 years for baby boomers.
Living in the family home for longer has helped millennials maximize their savings. According to the Census Bureau, over 30% of millennials were still living with their parents between 2009-2013, compared to 23.2% in 2000.
But this generation is starting to come out of the woodworks, taking that money they’ve been diligently saving and putting it towards a home purchase. And the home loan programs available today have been making the process easier for them.
Mortgage Programs Helping Young Americans Enter the Housing Market
While median home prices across the US continue to be extremely high, so have rent prices. In fact, millennials have discovered that buying is actually cheaper for them in the long run compared to renting. Mortgage payments for young adults are 20% less expensive than rent payments.
Millennials are benefitting from various loan types that are making it easier to qualify for. HomeReady, Fannie Mae’s affordable home loan product, allows young buyers to put as little as 3% down, which can come from flexible sources, such as family members. The program also offers homeownership education and guidelines to help young buyers be adequately prepared for homeownership.
HomeReady mortgages come with lower private mortgage insurance expenses, and allow “boarder” income to count towards qualifying for the mortgage, such as supplemental rental income from a tenant or roommate. The flexibilities offered with this program extend far beyond those of most other mortgage types, including FHA-backed mortgages.
Regardless of what means they are taking to save up, millennials are in a much better position to put down a sizeable down payment toward a home purchase. And with mortgage rates still being incredibly low, fixed-rate mortgage packages may just be the ideal remedy to increasing rent prices.