The time has come for the millennial generation – loosely defined as the group of people born 1981 – 2001 – to start looking for a place to call home and settle down in. And while many Americans believed this day would never come, millennials are buying homes at a rate that might be surprising to you. With this surge in millennials buying homes, it’s important that younger generations are aware of common problems that might occur when buying a home, so that home buying roadblocks can be prevented. So, don’t worry, Gen Y, we’ve got you covered with these home buying tips tailored just for you!
Are Millennials Buying Homes?
There was a time when most Americans thought millennials would never buy a home. But as this generation gets older and we move into 2021, these predictions are being proved false.
Though the millennial home buying rate was delayed a few years compared to earlier generations, millennials have been buying homes in large numbers. This has caused a major shift in the real estate market and helped the industry remain alive and well.
As the largest generation in America, it makes sense that millennials made up the largest share of home buyers at 37% in 2019.
Millennials adjusting to new lives and career changes are attracted to having low interest rates, more space, property ownership and the ability to grow their own wealth. Many millennials want a place to call their own, and don’t like the idea of living in a rental property for a long, extended period of time.
Yet, while many millennials are making big steps toward home ownership, other millennials feel barred from buying a home due to certain roadblocks faced by their generation.
Common Problems Millennials Face When Buying A Home
Here are some of the most common issues encountered by millennials that could potentially hold them back from getting approved for a mortgage loan and buying a home.
For many career-driven millennials, student loans have become a way of life. And in the midst of the current student debt crisis, there are a number of ways in which student loans could impact a millennial’s ability to get approved for a loan or buy a home.
On average, 83% of non-homeowners said that their student loan debt is preventing them from buying a house. This can affect a home buyer’s ability to save for a down payment on the house, meet monthly mortgage payments, and even qualify for a mortgage due to a higher debt-to-income ratio (DTI).
Student loans can impact a buyer’s DTI in multiple ways, whether they’re deferred or in repayment. If you have a high DTI and little or bad credit, you might consider paying off your student loans to lower your DTI and build a better credit score. We’ll talk more about your credit score next.
Credit history and credit score can also impact a millennial’s ability to get approved for a loan or buy a home.
Some people may argue that millennials don’t understand credit or how their score is calculated, but in fact, the real problem is far more complex.
Because some millennials grew up with tough economic circumstances that either led up to or followed the Great Recession, they may be hesitant about making larger purchases, like a car or a home, especially when it requires going into debt. So, instead of opening a credit card like many others would, millennials tend to pay for these big-ticket items using their checking accounts and credit cards to ensure they only purchase what they have the funds for.
Unfortunately, little to no credit in combination with a high DTI from outstanding student loans can make it very difficult for millennials to receive a home loan.
In order to obtain a home loan, lenders need to see a credit history of responsible borrowing. So, if homeownership is on your horizon, or even if it’s not, opening a credit card as soon as possible can help you build credit. To prevent you from abusing your new credit card, treat it like a debit card by only borrowing what you can pay back. If you follow this one rule, your credit score will grow in no time.
Sticker shock is enough to turn any buyer away, especially when it comes to home buying. That’s why affordability of real estate —particularly of the down payment on a property — can potentially block a millennial from buying a home.
Affordability is a major concern for millennials, as only 39% of millennials are able to afford a 20% down payment in order to secure a home loan.
Unfortunately, affordability is not a problem that can be solved by saving money alone. So, before you get too excited about a house on the market, make sure you know just how expensive of a home you can afford, and stick to that budget.
Many times, home buying involves other members of a family, such as the spouse and kids. But that’s not always the case. As millennials tend to stay single or get married later than other generations, some are skipping the family stage and moving right to independent homeownership.
To be clear, there’s nothing wrong with this. Nonetheless, being unmarried or single is often believed to be a barrier when it comes to someone’s ability to buy a home. However, you should never feel pressured by your marital status when buying a home as a millennial.
So, the question remains: how can millennials defy these and other home buying roadblocks?
Home Buying Tips For Millennials
As a millennial, the best way to prevent issues from arising during the home buying process is to follow these tips.
Manage Your Debt
As previously mentioned, one way to prepare for homeownership and regular monthly mortgage payments is managing your current debt. You can do this by paying off your student loans, auto loans, credit cards or any other debt you might have. Managing your debt will help you improve your DTI ratio which is important to do before you buy a home. One easy way to manage your debt is with a monthly bill payment calendar. Keep track of what you already owe, and strategically add other debt payments onto your calendar so that everything can get paid off in an efficient way.
Work On Building Your Credit
If you want to qualify for competitive home loan terms, it’s important that your credit score is as high as possible. You can build your credit by opening a credit card account, making your credit card and other debt payments on time, and only charging items to your credit card that you know you have the funds to pay back.
Explore Your Loan And Lender Options
Because there are so many different loan and lender options, it’s crucial that millennial home buyers conduct thorough research before making any final decisions. Millennials should research their various loan options, the different lenders they could potentially choose from, and which choices will best suit their individual needs.
Prepare For Your Down Payment
In order to combat affordability and make that first down payment, millennials must save their money. Saving money is important when making the down payment and when making a stand-out offer on a property. Nonetheless, it’s important that millennials stay within their budget when house hunting and familiarize themselves with their down payment options before buying a home.
Research The Market
Millennial home buyers can also research the real estate market in the area where they would like to buy a home. Learning more about real estate market trends can help home buyers better understand the home buying process and the reasoning behind some aspects of it.
The Bottom Line
As you proceed forward with the home buying process, don’t let these roadblocks discourage you from purchasing the home of your dreams. Stay true to yourself and remember these tips to help guide you. You can also reach out to an expert to learn more about home loans and get specific advice tailored directly to your own personal situation. Get in touch with a Home Loan Expert at Quicken Loans® for more answers to your mortgage and home buying questions!