Millennials have long been considered the generation that would remain renters forever. Growing up with the internet and witnessing the effects of the Great Recession, millennial homebuyers have a different perspective than past generations.
Unfortunately, there are still significant mortgage hurdles for many millennials. As a millennial, you may think homeownership is out of reach. However, learning how certain habits and economic factors combine can help you understand the steps you need to take to qualify for a mortgage.
Millennial homebuying habits
As a millennial, the effects of coming of age during the Great Recession with a wealth of information at your fingertips may have led to a different view of financial matters. Many millennials have witnessed the struggles their parents and grandparents have faced and hope to avoid the same issues. This has led to the following homebuying patterns for many millennials.
- Delayed home purchasing: Seeking higher education and a long-term career often tops the list of priorities for younger millennials. This means marriage and homeownership take a back seat.
- Reluctant to take on significant debt: Student loan debt affects nearly half of millennials. Add this debt to the trauma of coming of age during the Great Recession, and it's no wonder millennials are hesitant to face more debt. This reluctance leads to home purchases later in life, and sometimes a willingness to seek smaller, less expensive homes.
- Energy conscious: Millennials are conscious about the impact they have on the environment, leading them to seek homes with energy-saving features and appliances. Additionally, locations with easy access to walking trails or sidewalks and public transportation are popular.
- Informed: Millennials typically complete research online before starting the homebuying process. This means these tech-savvy homebuyers come to the table armed with the information they need about homes they're most interested in.
Situations preventing millennials from buying homes
While it may seem like millennials simply want to delay growing up, the caution they display when approaching homeownership is much more likely a result of a perfect storm of economic situations that make buying difficult. Here are the most common reasons millennials put off purchasing a home.
1. Many millennials are already facing significant debt
Student loan debt has tripled in the last 15 years, leaving many millennials already strapped for cash. In fact, 42% of millennials report they or someone in their house has student debt. Paying these debts means it's difficult for millennials to save for a down payment and closing costs. Student debt can also make potential homeowners wary about taking on more debt.
2. Saving for a large down payment
Saving for a down payment when the cost of living continues to increase and wages remain stagnant is difficult. This doesn't even take student loan debt into account. In fact, 68% of millennials surveyed cited not having enough for a down payment as the reason they can't purchase a home. However, it's possible that many people overestimate the amount needed for a down payment.
3. Millennials are seeking specific home features
Millennials are energy and technology conscious. This means the features they seek in a home may be considerably different than the needs of other generations. Energy-conscious millennials are often interested in green appliances and other home features that help save energy. They're also interested in locations that make public transportation and walking trails easily accessible. Smart home features are also heavily sought after by millennials. These specific wants and needs narrow down the pool of available homes.
4. A financial/homebuying information gap exists
Many millennials believe they're not financially prepared to qualify for a mortgage, although their income and credit scores suggest they could afford it. While millennials are technology savvy and likely have no problems navigating apps and websites to search for new homes, many don't know about financial tools available to help them overcome certain homeownership barriers. This financial education gap leads many could-be homebuyers to remain renters.
Steps to qualify for a mortgage
Many millennials underestimate their ability to secure a mortgage. Financial education and homebuying tips can help them face the housing market with confidence. Take these steps to prepare.
Educate yourself about your financial position
Instead of assuming you can or can't secure a mortgage, get a firm understanding of your financial standing and what you need to qualify. Begin by learning your credit score, your debt-to-income ratio and how much house you can afford. Learn about ways to increase your credit score, and save as much money for your down payment as possible.
Avoid making changes
Now's not the time to apply for a new credit card or take out another loan. Your field of employment should remain steady as well. Seeking new lines of credit can temporarily lower your credit score, making you look risky to lenders. While you can’t control whether you get laid off, it's a good idea to remain in the same job field. Changes in employment can delay or halt the mortgage process.
Seek professional assistance
It's easy to get confused about the requirements for a home purchase. A Home Lending Advisor can help you understand your options. There are a variety of mortgage loans available, and many have different qualification requirements. Even if you don't have a perfect credit score or thousands of dollars packed away for a down payment, there are opportunities to get a loan.
Take the time to learn about mortgage types and terms. Your lender should also be able to help you understand your options for low down payment programs and government-backed mortgages you may be eligible for. Some mortgages even allow you to use money gifted to you for a down payment and closing costs.
Talk with your Home Lending Advisor with your financial documents in hand to see what type of mortgages you may qualify for. A review of your income, debt, investments, and savings will allow a lender to determine how much you'll be able to borrow. A prequalification also shows sellers you're serious and likely able to get a mortgage.
Researching available homes online becomes easier when you narrow the search to meet the amount you’re prequalified for. Seeking an experienced real estate agent is a great idea as well. A real estate agent will be well-informed about local listings and can help you navigate the entire homebuying process.
Make an offer
When you find the home you want, it's time to make an offer. Your real estate agent will help you determine a reasonable offer based on comparable homes in the area. Some negotiation may be required before you and the seller reach an agreement. When the seller accepts your offer, the next phase of the buying process begins.
Fill out a mortgage application
When you and the seller have made an agreement, it's time to go back to your lender and apply for your mortgage. You'll have to fill out an application and provide documents that show proof of employment, your credit history, and other relevant financial details. After you complete your mortgage application, you'll receive a Loan Estimate that includes closing costs, interest rate and monthly payments. Your loan will be processed and reviewed by an underwriter before you get the final decision. When your loan is approved, you can move forward to closing the sale and owning your first home.
While the mortgage process isn't a simple one, it’s an achievable goal for many millennials. If you're unsure about your ability to qualify for a mortgage, talk to a Home Lending Advisor.