Millennials are typically defined as those born between the mid 1980s and the mid 2000s. They currently make up about 25% of the US population, and account for 21% of discretionary consumer purchases . Millennials grew up with a variety of technology, and are typically very internet-savvy.
But when it comes to home buying, Millennials have different goals, interests, and challenges than previous generations. The National Association of Realtors reports that people 36 years old and younger comprise the largest share of home buyers.
We spoke with a Mortgage Lending Specialist at Amplify Credit Union to get his ideas on some of the struggles Millennials face when it comes to buying a home.
Safety and Privacy
Millennials are moving in with significant others or getting married, so they’re looking for more space for both people—and possibly room to start a family. They are focused primarily on buying single-family homes, and are typically less interested in multifamily properties like townhomes or condos. The single-family home with a large yard may be out of the price range for many Millennials.
Social media, movies, and television may be to blame for the expectations Millennials have with regards to the type of home they are able to purchase. Many first-time Millennial homebuyers start out by looking for their dream home—instead of a starter home. In most cases, these are not the same house, and homebuyers may be disappointed to learn this.
Not Considering Long-Term Expenses
Online mortgage calculators like the ones on the Amplify website can help a Millennial determine monthly mortgage costs—but they don’t tell the whole story. The mortgage is just one piece of the home buying puzzle. Many Millennials don’t realize there are quite a few more upfront costs, including closing costs, appraisals, inspection, the first year of homeowners’ insurance premiums, and escrow accounts with 3 months of property taxes. In other words, there are costs beyond the down payment to be prepared to pay.
Underestimating Home Improvement Costs
Renters don’t usually pay for property repairs or improvements. When Millennials move from renting to buying a home, they may not have considered budgeting for a leaky roof, a broken dishwasher, or a struggling HVAC system. Further, popular home improvement shows may skew the perception of the difficulty and costs of remodeling. And, most projects don’t go as planned, so a home improvement project may end up costing more than estimated. Millennials should be sure they can actually afford a fixer-upper property as well as all the repairs and upgrades. They should also consider whether those improvements will add to the property’s resale value.
Understanding the Market
Not surprisingly, a buyer’s market is best for Millennial homebuyers. A buyer’s market features many homes for sale, offering homebuyers a variety of choice. A seller’s market, on the other hand, fewer houses are available for sale, which can not only drive up costs, but also reduce the number of choices. In a seller’s market, properties may begin receiving offers within hours of going on the market. This can be problematic for a first-time homebuyer who wants the opportunity to view multiple properties more than once. Unless a Millennial is ready to make an offer upon the first showing, they may lose out to someone who was ready to buy immediately.
Not Having 20% for a Down Payment
A 20% down payment is ideal; a homebuyer will immediately gain equity in the home, and will enjoy lower monthly payments. However, not all Millennials are able to save 20% to buy a house—especially young adults in entry-level roles. They may not realize that there are many options that don’t require the full 20% down payment; however, those options come with their own pros and cons. For example, it’s possible to put 5% down, get one loan for 80% and a second for 15%. But those who put down less than 20% may be required to pay mortgage insurance—yet another monthly expense to add to a Millennial’s budget.