Here’s What You Should Know About Millennials and Home Buying

Featuring Guest Author: Dustin Ngo, Loan Officer

Millennials and Home Buying

As the most studied and talked about generation of our time, this group of innovative and influential individuals has paved the way for many revolutionary achievements. Yes, today we are talking about millennials.

Well, not just millennials. We’re honing in on the association and trends between millennials and home buying. From an outside perspective, the actions of millennials can become groundbreaking and trendy, making their consumer behavior that much more intriguing. Do they translate their unorthodox mindset into their home buying experience? Or do they demonstrate similarities with other generations? Overall, no other generation has yet to be a driving force of the market, which brings us to our topic: what should we know about millennials and homebuying?

If you are a millennial that’s interested in seeing if these trends apply to you or are just someone fascinated by the correlation between the two variables, then you’re in the right place.

What are the Characteristics of Millennials?

Let’s kick this off with a bit of background to set the tone, so what are the characteristics of millennials? In other words, what makes them, them? Without knowing what qualities embody this generation, it would be ineffective to try and understand their behavior and preferences with home buying.

One thing to note off the bat is that the assumptions discussed in this article will not apply to all millennials. As a full disclaimer, these observations are based on several surveys that study the relationship between this generation and their overall consumer behavior.

There are several things we may already know about millennials, but what characteristics stand out?

Tech-savvy. Millennials have a high comfort level with technology and usually gravitate towards innovation, making them expert users of most things digital.

Challenge the status quo. Known to defy the ways of societal pressure, millennials constantly steer away from the status quo and are self-motivated to think for themselves.

Have a passion for learning. Using technology and the web as their advantage, they are bound to research anything and everything to stimulate their knowledge.

Prefer meaning over materialism. For millennials, the reason for buying something doesn’t stem only from the product or service, it’s the values represented by the company that matters too.

Enjoy efficiency and ease. Millennials being the tech-savvy individuals they are, enjoy automation and efficient processes. Because immediacy is a priority, they do not like to waste time.

Now that you know a few key characteristics of millennials, let’s move on to their approach when buying a home.

What Do Millennials Look for in a House?

When it comes to home buying, millennials have made up the largest portion of homebuyers since 2014 (NAR, 2021). This data prompts us to wonder, what exactly are they looking for when it comes to buying a home? Affordability and space are the two most common factors, but these two elements create a paradox in this current housing market. With home prices consistently increasing year after year, millennials find themselves sacrificing one for the other. Essentially more space equals a higher-priced home and vice versa. Therefore, all buyers should get pre-approved before the house hunt. Not only will you be able to gauge expectations home-wise, but you know exactly how much bang you can get for your buck.

After interviewing several millennials, we found that this generation of home buyers would prefer a more turnkey home to avoid having to do any renovations. Turnkey features include a modern and updated kitchen, a unit washer and dryer, and a yard. With millennials making up the largest group of pet owners in the US (Statisa, 2021), it makes sense why a spacious yard is a popular choice amongst millennials. Unfortunately, a single-family home with a yard doesn’t always fit into the budget, making a home with a nearby park the next best alternative.

According to the National Association of Realtors, 69% of older millennial homebuyers are married with kids or plan to start a family soon. As a result, a significant concern to this group of home buyers is the proximity and location of the school district. Adulting (a millennial term used to describe maturity and making responsible decisions) doesn’t just imply purchasing a home, it means purchasing a home in an area you would want to raise your kids in. For young millennials, their preferences drift towards an urban lifestyle and seeking a suburban area where it makes sense to start a family.

Do They Have Enough to Buy?

You may have heard it before… house prices are on the rise! Inventory is priced at its highest in years! Buy now before prices increase! As repetitive and skeptical as this may sound, there is some truth to it.

For example, the average median price of a home in San Diego, California is a whopping $790,000, a 17% increase compared to last year. Could this be the result of the global pandemic and the general shortage of inventory? Perhaps… it’s still too soon to tell. The real question is, with home prices so high, how is it possible for young millennials to purchase a home?

According to the 2021 Planning & Progress Study, an annual research study from Northwestern Mutual, millennials (ages 25 to 40) have an average of $51,300 in personal savings, while their retirement accounts have an average balance of $63,300. This data implies that most millennials have barely enough to put the minimum conventional down payment amount of 5%. On a $790,000 home, the down payment would be $39,500. With closing costs and furnishing in mind, they may have to dip into their retirement and rack up debt to purchase a standard home and make it livable.

How Does One Save for a House?

These numbers may discourage our millennial home buyers, but home buying in this market is still achievable. Dustin shares a few quick saving tips that millennials should keep in mind:

1. Be realistic and set your expectations early. Your first home is unlikely your forever home–you just need to start somewhere! Real estate investing has remained the most consistent and stable return on investment and has produced most millionaires. To accomplish this, some of them had to start small and work their way up, an ideal approach for today’s generation. The minimum amount down on particular programs is 3%, while others, such as FHA, allows 3.5%. There are also first-time homebuyer programs that will assist with closing costs and down payments. Reach out to your loan officer to see what program best fits your financial goals.
2. Get your debt under control so you can aggressively save. According to the Experian 2020 State of Credit report, the average millennial consumer has about $27,251 in non-mortgage debt with $4,651 of that being credit cards. To get your debt under control, start by paying off the highest interest-bearing debt. It may require you to live within your means and adjust your lifestyle. Learn to say no to that unnecessary dinner with friends, build a habit of making food at home, and restrain yourself from buying that Louis Vuitton item that you convinced yourself you needed. After your debts are taken care of, the results will both shock and benefit you. Your credit score will gradually improve and will allow you to allocate more savings from each paycheck.
3. If family members offer to help with the down payment… take it! Some may rule this option out without hesitation as part of their pride, but accepting help from family members happens more frequently than you think. Doing so will help tremendously with your purchasing power and will get the ball rolling. With the direction the market is headed, your home equity is expected to increase over time. If you sell your home down the line or do a cash-out refinance, you’ll be able to fully repay the family member that gifted you.

Millennials and Home Buying: Myths Debunked

Even though millennials are known to be dominant users of research, myths about the mortgage process are bound to circulate among potential first-time home buyers and quickly turn them away. What are some myths about the mortgage process that millennials hear about?

You need 20% down to purchase a house.

FALSE! While 20% down is a huge advantage due to not having to pay mortgage insurance, you can still put as low as 3%. Mortgage insurance receives a poor reputation, but for buyers that aren’t able to put 20% down, it still allows them to buy a home. If you have good credit, mortgage insurance isn’t as bad as you may think.

Your credit needs to be in the high 700s or 800s to get pre-approved.

FALSE! Depending on the loan program you choose, the minimum credit score can vary. For example, a conventional loan requires a 620 FICO and government programs like FHA require as low as 580. Different lenders will have different guidelines for FICO, so make sure you double-check with your loan officer.

We are in a bubble and it’s not a good time to buy.

FALSE! Since 2016, historical data has shown that the average home value in San Diego, California increased from $530k to $790k, resulting in a 49% surge (Redfin, 2021). At the end of the day, it depends on the home and area you’re looking to buy but generally, home values are seeing a continuous rise across the board. At least with this data, you can’t go wrong investing in San Diego real estate.

A Millennial Making Moves

Dustin Ngo, a rising mortgage consultant based out of San Diego, has worked with several types of clients, but a large portion of them are made up of millennials. Being a millennial himself, he has the upper hand in understanding millennial behavior and can apply his own mannerisms and mortgage expertise when helping others with their home buying journey.

I had a millennial friend from middle school reach out with general questions about a pre-approval. Initially, he was under the impression that he needed 20% down to buy. When I explained that it was a myth and showed him what 5% down would look like, he was amazed at the numbers. After realizing it was doable, it was only a few months until we had him approved and in escrow for a single-family home at $475k. 6 months later, his home is now valued at $525k! In that short time, that’s a 50k increase in equity and a 10.5% return on investment.

It’s widely common for millennials to assume that homeownership isn’t possible without already having a hefty amount of savings. With Dustin’s help, his friend was able to overcome this presumption and achieve a dream that was closer than he thought. This success story is a great example of how knowledge and expertise come into play when homebuyers have their doubts.

The Next Step for Millennial Homebuyers…

What’s next for millennial homebuyers? Will they take over the real estate market? In that case… millennials, assemble!

Just kidding, though now they will be well-informed of what it really takes to buy a home. Homeownership is not something that you need to immediately jump into, but if you think it’s not for you due to reasons that simply are not true, you may be missing out on some life-changing opportunities.

We hope millennials continue to educate themselves on the mortgage process and find peace in knowing that it may be a possible route, no matter their situation. If you’re a millennial who’s currently renting, we suggest you check out these differences between renting vs. owning to help you decide which is the better fit for you. Contact us if you have any additional questions about the process or if you’re ready to give it a try.

About The Guest Author

Dustin Ngo

Dustin is a San Diego native who has over five years of experience in banking and consumer lending. His goal is to utilize his background in credit analysis and underwriting to create the smoothest possible mortgage loan experience for all of his clients. He believes that honest and clear communication is key to customer satisfaction and strives to implement this from the start of the loan until closing. Dustin is a proud recipient of the Rising Star Mortgage Professional Award for 2021. Learn more.

Financing details are for educational purposes only. All views and opinions do not constitute financial or legal advice and reflect requirements at the time of publication. Rates, program terms, fees, and conditions referenced are subject to change without notice. Not all products are available in all states for all amounts. All mortgage applications are subject to underwriting guidelines and approval. This is not an offer of credit or a commitment to lend. Residential Wholesale Mortgage, Inc. dba RWM Home Loans is an equal housing lender licensed by the CA Department of Real Estate #01174642 and CA Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act. NMLS# 79445