The millennial generation is defined as individuals born between 1981 and 1996. This group has represented the largest share of the homebuying market for the past five years in a row, with the 2018 share at 36%, according to Anna DeSimone, housing advocate and author of "Housing Finance 2020."
Even though millennials make up a significant portion of the buyer pool, they're also choosing to live with their parents, longer or are content being renters—in effect entering into homeownership later than previous generations. This can make it appear that home ownership is not a priority, but research suggests otherwise.
"Millennials are even more interested in buying homes than their parents but they're slower to buy due to a set of financial challenges, which include student loans and credit card debt, as well as an inability to save up for a down payment," says Farnoosh Torabi, personal finance expert and host of the SoMoney Podcast, which focuses on millennial money issues. Another challenge is rooted in the fact that on average wages have been stagnant over the last 15 years, all while the costs of living, education and housing have skyrocketed.
Developing a sensible plan and building a great homebuying team are the keys to successfully reaching homeowner status in a timely manner. The following are a few tips to get started in the right direction.
The largest debt hurdle is student loans, followed by credit card debt and car loans. According to CNBC, millennials ages 25 to 34 have an average debt of $42,000. It's important to manage debt properly and approach homeownership with zero or a small, healthy amount of debt, which saavymoney.com states is no more than 10 to 15 percent of one's monthly take-home pay. To avoid detrimental late payments from showing up on credit reports, make sure deferred student debt payments are in the proper deferred status.
Save for a down payment
Although the standard down payment for conventional loans is between 10 to 20 percent of the sale price, there are other down payment options or assistance. Most lenders have info on the many different loan products and programs in place to help buyers purchase a home with no or very little money down.
The younger generation of home buyers will face some challenges but they don’t have to be barriers to achieving home ownership.
Partner with a great Realtor and lender
A good real estate agent can help provide thorough education and understanding of the homebuying process. It's important to know the steps and have a strong grasp of what to expect so the transaction will flow smoothly, and buyers eliminate dealing with unanticipated surprises. Even if a purchase isn't in the immediate future, it's wise to build a relationship with a lender. They can help provide guidance and they know which financial steps are most crucial in preparation for making a home purchase.
The younger generation of homebuyers will face some challenges, but they don't have to be barriers to achieving home ownership. Believing in one's ability and setting clear goals for paying off debts while building a savings will be essential for success on this journey.