Nearly three-quarters of millennial respondents to a recent TD Bank survey of first-time homebuyers say that saving for a down payment on a home represents the greatest hurdle toward achieving the American dream. But it’s a dream they intend on seeing through to coming true: Those surveyed aim to buy a house within the next five years.
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- 12 Surprising Truths About Millennial Homebuyers
12 Surprising Truths About Millennial Homebuyers
They're Saving Up Now
They’re Future Suburbanites
Though many currently rent in cities, 50 percent of millennials will ultimately settle in the suburbs, citing larger square footage and safer neighborhoods as reasons. Comparatively, 11 percent of millennials would prefer to buy in a metropolitan area, 11 percent in a small town, 11 percent in a rural area and the rest were undecided in the Realtor.com survey.
They Want Single-Family Homes
The term “starter home” might have been coined for today’s young generation. Seventy-three percent hope to purchase either a single-family home or a townhome, while a mere ten percent are eyeing condos and only 15 percent are interested in multi-family dwellings. One-family doesn’t necessarily mean down market, either: A recent study found millennials are spending a median of $217,000 on a home.
They’re Not Fans of Fixer-Uppers
They’re Putting Less Down—But Hope to Pay It Off Fast
Twenty percent was the down payment rule of thumb for years, but 35 percent of millennials are putting down less these days. Yet younger folks can’t seem to fathom paying down a mortgage for as many years as they’ve been alive. The TD Bank survey found that one-third plan to burn their mortgage after 15 years. Good luck with that!
They May Not Be Prepared for Unforeseen Costs
The home-buying process can be fraught with hidden costs, like a host of closing fees, and TD Bank found that 17 percent of first-timers aren’t ready for these expenses. The lender also learned that 44 percent of millennials incurred up to $5,000 in unexpected costs during the mortgage process.
They’re a Diverse Group
Millennial homeowners are more diverse than their elders, according to the Zillow study: Sixty-six percent are white, 17 percent are Latino or Hispanic, ten percent are black and seven percent are Asian or Pacific Islander. Within all American homeowners, 77 percent are white, while nine percent are Latino or Hispanic, nine percent are black and five percent are Asian or Pacific Islander.
They’re Not Entirely Techy
Yes, nine out of ten millennials get their home-buying education on the Internet, and one in four use at least five online resources. But once they’ve done their research, Zillow shows that young homebuyers want the human touch: They reach out to more real estate agents than other generations, contacting at least two when buying (and three when selling). Thirty percent prefer to chat with agents on the phone, 24 percent would rather meet face to face and only one in six choose to text.
They Crave Control
The main reason young people are working towards home ownership? A Fannie Mae survey from 2014 found that 93 percent cited the desire to control their living space—be it painting, remodeling, or landscaping down the line. Renters don’t have that freedom.
They’re Community Oriented
They Won’t Let Student Debt Get In Their Way
Although student loan debt has surged considerably in the past decade, this doesn’t seem to be a deterrent to millennials’ dreams of home ownership. In fact, a Zillow analysis found that homeownership increased for each successive level of education.
They Fear They Can’t Afford It
Despite millennials’ home ownership goals, a NerdWallet analysis of various recent studies found that they aren’t buying homes at the pace of previous generations—mainly because they believe they’d be ineligible for a mortgage due to insufficient credit score/history, inability to afford the down payment or closing costs, insufficient income for monthly payments, and/or too much existing debt. But NerdWallet would counsel young people that their fears are largely unfounded: Given the estimated monthly income of $2,940 for Americans ages 25 to 34 (from the Bureau of Labor Statistics) and median estimated monthly principal and interest payments of $945 (from Black Knight Financial Services), millennials, on average, would reach a monthly debt-to-income ratio of 32 percent, well within the range acceptable to most lenders when considering mortgage applications.