Despite their continued youthful reputation, older Millennials are within a couple years of turning 40. Many should be the prime group for home buying. And while they have become the largest percentage of home buyers in the past few years, a much larger percentage are still renting compared to their parents or grandparents at the same age. It seems home buying for Millennials has been much harder.
This is due to many factors, including coming of age in the Great Recession, skyrocketing cost of living, and stagnant wages. And as the oldest members of Gen Z are reaching their mid-twenties and might start thinking about owning a home, a global pandemic and economic downturn has made the idea seem hopelessly out of reach.
But despite these challenges, owning a home, even now, can be easier than many young people might think! And much better for long-term financial goals.
Recent studies show that the average homeowner has a net worth over 40 times larger than that of a renter! With homeowners having a net worth of approximately $255,000 and renters having a net worth of $6,300, it’s easy to see how buying a home can help you better achieve your long-term financial goals.
And yes, sometimes, renting might be the best option for young people that are moving frequently and might not have the time to make investing in a home worth it. But Millennials continuing to rent once they know they will be staying in place long-term are basically paying their landlord’s mortgage! Why not put that money towards a healthy financial future?
One of the biggest hurdles that young people fear when considering home ownership is saving up for a down payment. Many Americans are living paycheck to paycheck, including young professionals. In the DC area, wages are higher than in many areas of the country, but home prices, rent, and other living expenses are also much higher. Saving a 20% down payment anywhere nearby seems like a near-impossible task. But in this case, tech-savvy Millennials are clinging to old ideas of financing.
The old adage that you need to save 20% of the price of a home as down payment is just not true anymore. First-time home buyers these days usually pay only around 7%, a much more manageable goal. And many lenders can start a payment plan with a down payment as low as 3%-6%.
This will, most likely, come with Private Mortgage Insurance (PMI); but overall, homeowners make much more money in appreciation on their home than they pay in PMI. Especially in very active real estate markets, like Northern Virginia’s. And with a conventional loan that cancels PMI when the loan-to-value ratio (LTV) reaches 80%, this can happen even faster.
First-time home buyers should also see if they qualify for an FHA loan or other state and local homebuying programs. These can also come with a lower down payment requirement and can even help with closing costs.
Another hurdle is the fact that the down payment isn’t the only expense to consider when buying a home. Fortunately, many first-time home buyers have a variety of options to help them with closing costs. First is the aforementioned first-time home buyer programs.
These state and federal programs aren’t just for those with the lowest incomes. There are many that are specifically made to help young professionals and other first-time home buyers get a boost. Many programs target those at or below a certain percentage of the median income, which in affluent areas is an easy qualification for those just starting out.
Closing costs can also be a great way for family members to contribute to a young family. Many families are often happy to chip in for closing costs, if they can, to get first-time home buyers who have secured a down payment that last mile to closing.
It all comes down to monthly payments. When getting pre-approved for a loan, first-time home buyers can make a budget and get a good idea of what their payments will look like for the length of their home loan. It will, of course, depend on the price of the home, but pre-approval gives an idea of what price range to consider when looking to keep monthly payments at a certain level.
With rents rising higher and higher every year, Millennials and Gen Z are paying more and more of their paycheck in rent. On the other hand, if they purchase a house, a home loan can have a fixed rate, adding stability and saving money long-term. And speaking of saving money, each payment goes into the equity of the home, going toward personal assets instead of the landlord.
Working with a great realtor is crucial for first-time home buyers, especially in an active market. Realtors are paid by the sellers, so having their expertise, recommendations, and experience comes at no cost to the buyers. They can also recommend trusted lenders and home inspectors and navigate pitfalls in the unfamiliar home buying process.
Even in troubling times, the dream of owning a home is so much easier than many Millennials think. With planning, research, and a trusted team that includes a great realtor, Millennial home buyers can achieve one of the fundamental goals of adulthood, owning a home.
Elizabeth Marcano, Writer for Geva and Jane Real Estate