Top Reasons Millennials Think They Can't Buy A Home (When they can!)

“Millennials — and first-time homebuyers in general — should never just assume they can’t afford a home. The first step to owning a home is knowing HOW you can DO IT.  so you should always research your options,” says Ling. “Buying a home may be more of a possibility than you realize.”- Ling from NerdWallet

Millennials are adults born between 1982 and 2004, with the oldest of the generation in their early 30's. Millennials have a history of renting and living with their parents longer than generations before.

Even though home ownership among millennials has decreased relative to prior generations, studies have shown millennials want to be homeowners. According to Business Insider, a staggering 91% want to eventually own a home. They understand the advantages and long-term value of owning rather than renting. 

There are many reasons millennials are waiting longer to buy or completely forgoing buying all together.

One of the main reasons being their belief that they can't afford to buy a home.

 ?We are here to say, yes you can! ?

A new report found that 50% of all home buyers are under the age of 36.

The assumption"I can't afford to buy a house" usually comes from assuming your credit score is too low, debt-to-income ratio is too high, and not knowing what financing options are available.  

One of the top reasons millennials falsely believe they can't buy a home is the perception that they are not financially capable.  

When asked what obstacles they believe are keeping them from buying a home, these are the top 4 most commonly expressed.

• Insufficient credit score or history
• Affording the down payment or closing costs
• Insufficient income for monthly payments
• Too much existing debt

An analysis completed by The DataNerd Wallet showed for many millennials, these perceived obstacles are actually not obstacles at all. Most millennials have not been educated on their home buying options. Therefore, they assume they need excellent credit, 20% down payment, top annual salary, and little-to-no debt. Surprisingly, that's not the case.

Down Payment

“Many millennials believe they are unable to afford homes, when really many of them are unaware of the different financing options that exist — particularly those that allow for a down payment of 6% or less.” says Ling from NerdWallet 

There are many loan options that require different qualifications. When buying a home, Lenders typically recommend and prefer 20% down. That gives the buyer the best chance of being approved for a conventional loan. That’s $100,000 down for a $700,000 home, but that is a preference - not a requirement for all loans. 

When Millennials were asked what percentage they thought they needed to buy a home, almost 50% had no idea what amount is needed for a down-payment, and 73% were not aware there are low percentage options available, where only 3-5% of the homes purchase price is required.  Yes only 3-5% down. Thats $21,000-$35,000 for a $700,000 home. These options are available for those who quality. 

RealtyTrac estimates that 30% of all homebuyers put down 3% or less. 

Less-Than-Ideal Credit Score 

Many first time homebuyers don't realize their credit score IS high enough. Its always best to talk to a reputable broker who has access to a multitude of products that may serve your financial needs. We can tell you what guidelines you fit into!

Many millennials and first time homebuyers believe they can't buy a home due to a less-than-ideal credit score. Even with a low credit score, there are great options. 

For homeowners who do not quality for traditional loans due to lack of a large down payment available or a low credit score, an FHA Loan may be a great option. 

FHA Loans are insured by the Federal Housing Administration. FHA-insured loans offer smaller down payments, reasonable interest rates, and lower closing costs than traditional loans.

The reason why FHA loans are so popular is because borrowers that use them are able to take advantage of benefits and protections unavailable with most traditional mortgage loans. Loans through the FHA are insured by the agency, so lenders are more lenient with less than ideal credit scores.

There are a variety of loan options available as well as State, County and City government home buyer assistance programs.

Student Loans 

“With student debt on the rise, there’s been a lot of speculation about whether the cost of a college degree hurts an individual’s ability to buy a home. From what we’ve seen, getting a four-year degree or higher is actually positively associated with homeownership — even when accounting for debt.”-NerdWallet’s Ling

What about student loans? In the past decade the percentage of students with loan debt has increased. More than 50% of students in California have student loan debt, with an average amount of $22,191. 

Many millennials assume their student loan debt will negatively impact their chance of buying a home, but this is not the case. In fact, higher education has been shown to have a positive effect on homeownership. A Zillow analysis showed that for each level of education obtained, homeownership increased, even when student loan debt increased. If someone has a bachelors degree, graduate degree, or higher level of education, they were more likely to own a home, even when their student loan debt was high.

Those looking to lower their debt-to-income ratio should look into income-based repayment options or may be able to refinance their loans before buying a home. Although having a low debt-to income ratio is preferred, its not always a required in order to buy a home.

Where to begin?

The best way to find out your options and see what you qualify for is by talking to a real estate professional. Never assume you won't qualify to buy until you learn what options are available to you! If you don't qualify quite yet, don't worry, we will take you through the steps to get there!