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What You Need to Know About Millennials and Homeownership

Rising rents across the country are becoming a challenge for residents with a growing number of renters, 50 percent, spending more than 30 percent of their incomes on rent – a number economists with The Wall Street Journal view as “financially burdensome.” Inflation-adjusted rents rose 7 percent from 2001 to 2014, while renter household incomes fell 9 percent, creating affordability challenges for many renters. More than 21 million households are burdened by how much they pay in rent, up from fewer than 15 million in 2001. Even Atlanta, a traditionally less expensive rental market than most cities, is squeezing out lower and middle class renters.

J.D. Crowe, President of Southeast Mortgage

J.D. Crowe, President of Southeast Mortgage

“We’re not the little city in the south anymore. It’s much more expensive, especially the rental market,” said Valerie Bernardo, director of housing for the city of Atlanta.

Despite the aforementioned rising rents, millennials are having a tough time converting to homeowners from renters. Curbed reported in March that first-time homebuyers make up 32 percent of all buyers, the lowest percentage since 1987. However, the majority of millennials want to buy a home, according to Fannie Mae, for financial reasons and lifestyle reasons.

There’s a huge opportunity right now for real estate professionals to appeal to millennials who are considering homeownership if they have a broad understanding of the market they are trying to break into and knowing what is potentially holding millennials back. Here’s what you should know:

It’s Not Just About Student Debt

Although we all keep hearing that student debt is the factor inhibiting millennials from receiving the keys to their castle considering the fact that student debt has sky rocketed 56 percent in the past 10 years – an average of nearly $29,000 per borrower. However, according to NerdWallet, student debt may not be the deciding factor holding millennials back from homeownership. In fact, data reflects that homeownership actually increases for each successive level of education, even if debt is increased.

Millennials can still qualify for loans if the debt isn’t insurmountable. Fannie Mae data shows over half of young renters have debts of less than $10,000. NerdWallet’s mortgage calculator arrived on a debt-to-income ratio for millennials of 37 percent, including property tax and homeowner’s insurance, which is just above the high end of the range that guides many lenders.

Strict Credit Score Requirements are a Major Deterrent

A third of millennials aren’t meeting the industry standard credit requirement of 620, according to NerdWallet. However, other financial factors are working in favor of millennials and other hopeful homeowners. Credit standards have been easing in recent years and have yet to tighten, despite rumors. Interest rates have remained roughly flat at historic lows and median mortgage payments in December were still $380 less, on average, than before the housing market’s collapse.

Millennials with less-than-perfect credit do in fact have options such as Federal Housing Administration loans that allow applicants who have lower credit scores and small down payments to qualify for a loan, and some lenders are offering conventional loans with 97 percent financing.

The Solution

Curbed said it best when sharing advice on how to help millennials achieve homeownership: “It’s better education and a real estate industry that does a better job of explaining the options available to Millennial homeowners.”In a Fannie Mae survey, nearly half of 18-34 year olds didn’t know what lenders expected of them and 73 percent were unaware of lower down-payment options.

“Millennials — and first-time homebuyers in general — should never just assume they can’t afford a home,” said NerdWallet Mortgage Manager, Chris Ling.

By taking the time to understand millennials’ homeownership challenges, and taking the time to educate them and address their concerns, you may find yourself with a new, large group of clients ready to sign.


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