As a millennial, I’m pretty sick of hearing about millennials. We’re a hyper-analyzed generation whose legacy seems to lie in a perceived self-entitlement, laziness and a liking of avocado toast.
Don’t get me wrong – avocado toast is great (even though it seems to be the downfall of our generation’s financial stability). What bothers me the most might be the many theories swirling through online magazines and social media outlets trying to explain to the world why millennials can’t buy a home. Or even worse, they offer impractical, silly “advice” about we have to do in order to buy a home. (Spoiler alert: You shouldn’t buy any more avocado toast!)
The goal of this article isn’t to convince all millennials to buy a home. That’s just not feasible for everyone. My goal is to put to rest some of the cliché myths regarding what millennials need to do to buy a home and look at the reality of the situation instead.
Essentially, the millennial generation – loosely defined as the group of people born between 1981 and 2001 – varies not only in age but also in circumstance. Where some members might be ready to take the leap into homeownership, others might be more inclined to pay off their student loan debt while renting or living at their parents’ house – and that’s fine!
Affordability is a major concern affecting millennial homeownership. Only 39% of millennials are able to afford a 20% down payment in order to secure a home loan. And it’s not because of the avocado toast, as some financial experts would suggest.
Hypothetically, let’s say you’ve managed to find a home for $100,000. A 20% down payment on that home would be $20,000. Now, let’s say your daily allowance for avocado toast is $10.
If you were to save that $10 you spend on avocado toast every day, that would amount to $3,650 a year. In order to save for a 20% down payment, you would have to go without avocado toast for nearly six years.
So, the problem isn’t avocado toast or lattes. The problem is affordability. And while there are options out there for millennials to buy a home, it’s wise to know just how much home you can afford before stepping into the home buying world.
Unlike avocado toast, fancy coffee and other habitual expenses, student loans are more of a need than a want, meaning it’s a little harder to avoid high student loan debt than a maxed-out monthly food allowance.
Carrying a whopping $35,000 in student loan debt on average, 83% of non-homeowners said that their student loan debt is what’s preventing them from buying a home. This, they conclude, not only affects their ability to save for a down payment and afford monthly mortgage payments but also impedes their ability to qualify for a mortgage due to their high debt-to-income ratio (DTI).
Depending on the type of loan you’re applying for, your DTI can be impacted by your student loans in different ways, whether they’re deferred or in repayment. The best thing to do would be to contact a lender to discuss your options, should you choose to buy a home.
If you find that you have a high DTI and little or no credit, you might consider spending time paying off your student loans (lowering your DTI) and building a good credit score. We’ll talk about that next.
Credit is another hot topic when it comes to millennial home buying.
Some sources will argue that millennials don’t understand credit or how their credit score is calculated. And that might be true in some cases. But for others, the problem runs far deeper than a lack of understanding.
If you think about it, some millennials, inching closer to age 40 in 2018, grew up in some tough economic circumstances that either led up to or followed the Great Recession. As a result, millennials became more hesitant with larger purchases (like a car or a home), especially when it requires going into debt.
Instead of opening credit cards, they often pay for things using their checking accounts and debit cards, because doing so means you only purchase what you have the funds for. Combined with a possible high DTI from their student loans, having little or no credit puts a halt on homeownership.
Since you need to show a history of responsible borrowing in order to obtain a car or home loan, it’s important to start responsible borrowing as soon as possible. The best way to do so is to open a credit card and treat it the same way you would a debit card – only borrowing what you can pay back.
Even if your current goals don’t include homeownership, having a credit card and a history of responsible borrowing will set you up for future financial success should you try to secure a car loan or even a personal loan.
“A spouse, a house and two and a half kids” – otherwise known as the American Dream – isn’t a new concept, yet it seems to find its way into the psyche of every emerging generation. The pressure to be able to financially support a family and a home is something that has affected every generation, including millennials.
Marriage often precedes and triggers homeownership, but just 55% of 25- to 34-year-olds today live with a spouse or partner, compared to 80% in 1967. This means that fewer millennials are in circumstances that would normally cause them to begin thinking about homeownership.
To be clear, we’re not saying that there’s anything wrong with staying single or getting married later than past generations have. But it’s clear that these things are happening with many millennials, and the reasons behind it are important to consider. And in fact, many millennials are delaying marriage because of affordability.
However, if your goal is to own a home, you don’t have to follow what’s traditionally thought to be the correct order of events (marriage, house, then kids) in order to obtain the American Dream. In recent years, single women have actually become a rising market in homeownership, representing the second largest home buying group after married couples.
Millennials are as diverse as the age range they’re categorized in, meaning that every millennial experience will be uniquely their own. Categorizing us as nothing more than lazy, self-entitled avocado nuts is simply unfair and silly.
If you find that you’ve struggled with many of the obstacles to homeownership discussed above, don’t sweat it! There are plenty of ways you can start preparing for homeownership today.
However, if you find that you’re ready to take the leap into buying a home, you can apply online through Rocket Mortgage® by Quicken Loans®. If you’d rather get started over the phone, give us a call at (800) 785-4788.
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