If you are a Millennial and it seems like all your friends are suddenly buying homes you are not alone, especially if you are an Older Millennial (age 26-35). The median first-time home buyer is 32 years old with a household income of $72,000.
Entering the ‘Responsibility Zone’
Millennials (age 17-35) have made major life-changing decisions such as moving out of the house, getting married, buying a home and having children (not necessarily in that order) later in life than previous generations. But many Older Millennials (age 26-35) are now crossing off all four of these major life events within a span of only two years… entering the ‘Responsibility Zone’!
(FYI… if you buy a home in Minnesota when you are single, if you marry your spouse will automatically have joint ownership in that home. Conversely, if you divorce and own a home, both ex-spouses must be accounted for when you sell even if only one name is on the deed.)
Top reasons Millennials delay buying
While you may think the biggest deterrent to young buyers would be student loan debt, 44% of all Millennial home buyers purchased homes while also paying off students loans. Unfortunately, the two biggest reasons Millennials give are often not based on facts… they are actually myths.
You don’t need ‘perfect credit’
According to a Fannie Mae survey, 59% of Americans don’t know or are misinformed about what credit score is needed to qualify for a mortgage… many believe a good score is 780 or higher, so don’t believe they have good enough credit to qualify.
In reality, more than half of approved mortgages had a FICO credit score of 600-749, and the average FICO score for Millennial home purchases was 721 over the past year.
You don’t need a 20% down payment
The days when you needed 20% down to get a mortgage are long gone, and many programs actually allow as little as a 3% down payment. In fact, 61% of Millennials who bought a home last year put down 10% or less!
Owning a home makes financial sense
- Rents usually go up, while mortgage payments can be fixed (taxes and insurance costs will vary from year to year)
- You can use the equity in your home as a financial resource if needed in the future
- You can build wealth without paying capital gains tax on a price of up to $250,000 for a single and $500,000 for a couple when you sell your primary residence
- Your mortgage can act as a forced savings account
- Overall, wealth of homeowners is greater than that of renters
Rents have increased consistently over the last 20 years… why not pay a mortgage for yourself rather than your landlord. And with a fixed rate mortgage, your monthly payment will remain constant for the life of the loan.
Why Millennials choose to buy
The reasons Millennials choose to buy are similar to why anyone prefers owning their own home over renting.
- To have control over their living space – having the ability to paint, make updates and renovations, have a pet, have a garden
- To have a sense of privacy and security – you control who has access to your home and how you secure it
- To live in a nicer home – you can choose to make changes to your home however you want to accommodate your lifestyle
- To feel engaged in the community – having your home value is directly tied to your neighborhood and community, gives you a reason to get involved
- To have flexibility in future decisions – the equity you build can give you security and resources to use in the future
Be thankful you don’t have to pay the interest rate your parents and grandparents paid when they first bought
Even though rates have come up a bit, they are still much lower than 10, 20 or 40 years ago. If you are concerned about interest rates in the 4% range, think about interest rates in the 18% range 25 years ago… and people were still buying!