Are Millennials Buying Homes?

Historically speaking, home ownership represents stability and has been viewed as a wise long-term financial investment. More recently, though, attitudes regarding ownership have shifted among young adults, so much so that it isn’t the rite of passage it once was.

Home buying among millennials is lower than other generations at the same age. Of course, this doesn’t mean that millennials have given up completely on the idea of owning. It remains a goal for some.

But when you compare home buying rates among millennials with their parents and grandparents at the same point in life, the younger generation is off to a slower start.

According to a report by the U.S. Census Bureau, millennials represent the smallest group of home owners—with only 36% of those under the age of 35 owning a home in the second quarter of 2019.

Why aren’t millennials purchasing at the same pace as previous generations? Possible explanations include…

1. Affordability

While a college degree can help graduates earn more over a lifetime, student debt does prevent some millennials from buying a home.

Debt-to-income (DTI) ratio is one factor that determines whether an applicant gets approved for a mortgage loan. This is the percentage of monthly gross income that goes toward monthly debt payments.

Typically, your DTI ratio can’t be more than 36% to 43%. If you have a monthly income of $4,000 and recurring monthly debt payments of $1,600, your DTI ratio is 40%.

Add a $350 monthly student loan payment on top of this, and your monthly debt payments increase to $1,950. This causes your DTI ratio to jump to 48%, which might be too high to get a mortgage.

2. Lack of a down payment

In addition to a high DTI ratio, lack of a down payment is another hurdle for many millennials. Between high student loan payments and the high cost of rent, even those with good incomes and steady employment find it challenging to save up enough cash for their down payment and closing costs.

Many repeat buyers use equity from a sold home as down payment on a new purchase. First-time home buyers don’t have the luxury of equity. So unless they’re receiving a gift from family, they have to save for their own mortgage-related expenses.

3. They Think Buying Is Impossible

Some millennials don’t fully understand lender requirements, causing some to overestimate what it takes to get approved for a mortgage. If they believe they won’t qualify, applying for a mortgage isn’t even on their radar.

While mortgage lending standards have become tighter over the past several years, borrowers don’t need perfect circumstances to get approved for a mortgage loan. Some millennials think they need a high credit score to qualify, yet several mortgage programs allow credit scores as low as 580 to 620.

Of course, these three reasons only scratch the surface. Millennials delay home ownership for other reasons, too.

Location is important to some in this age group, to the point where they're willing to put off home ownership to live in a desired neighborhood. This includes urban areas and other preferred neighborhoods where it’s more cost-effective to rent.

Similarly, some millennials prefer the convenience of renting. Rather than deal with ongoing maintenance and the costs of ownership, they prefer calling a landlord when issues arise.

If you’re a millennial looking to own but think it isn’t feasible, know that you can get your foot in the door. Whether the holdup is student debt, lack of a sufficient down payment, or a lower credit score, let the loan experts at Blue Spot Home Loans help you.

Schedule a consultation and we’ll take a closer look at your situation and determine which home loan program is the most suitable. We offer a range of products ranging from conventional home loans to government home loans (FHA, VA, and USDA). These products include low down payment options and flexible credit requirements to help you realize your dream sooner. Give us a call at (800) 976-5608 or fill out the contact form to get started.

Cherry Creek Mortgage Co., Inc. NMLS #3001, dba Blue Spot Home Loans is not endorsed by, nor acting on behalf of or at the direction of the U.S. Department of Housing and Urban Development, Federal Housing Administration, U.S. Department of Agriculture, Veterans Administration or the Federal Government.