Millennials are the first generation in America that will probably not be able to do as well as their parents. In the United States, there is not as much upward mobility as there was in the past. What is the cause of this?
CNN reports that Millennials have more college degrees than their parents. They also have an enormous amount of student loan debt. Many millennials have lower-paying jobs than their parents had at the same age when adjusted for inflation. Spending patterns changed as well, due to the high cost of living.
Finding The Money
Saving is not easy. The net worth of Americans, who are from 18 to 35 years old, decreased by 34% since 1996. Even though millennials are financially savvy, the 2008 global financial crisis made it difficult to find jobs and made saving for many nearly impossible. Those who have been able to put aside some money in the last ten years are lucky if they have $8,000 in savings, which is the average for those millennials trying to save for a home purchase.
Soaring Home Prices
By 2018, the real estate market recovered from the 2008 collapse. In most American cities, housing prices are going up significantly. The home prices surpassed pre-crash levels and now continue to rise. Soaring home prices make buying a home very challenging.
What To Do?
For most millennials, the best choice is to continue to live with their parents and use the lower cost of living as an opportunity to put away enough money for the required down payment to buy a house. Many plan to live very frugally and to save for up to five years if they want to buy a home of their own.
For others, they are developing co-ownership plans, where millennials plan to share home buying with more than one person. In these deals, they become the landlord and the tenants of a multifamily property that they buy together.
The Math
The median home price in America is $226,800. First-time buyers, who qualify, can get FHA-backed mortgage financing with as little as 3.5% down. Still, that is $7,938 just for the down payment. There is also the need to have 2% to 5% of the loan amount for closing costs, which can add up to $10,943.
Financial prudence recommends having at least three months of living expenses in savings to cover any unexpected temporary emergencies, like losing a job. Add another $12,000 for this contingency. This means to safely buy a home at the median price, with a low-down-payment loan, a millennial may need to have as much as $30,881.
For conventional financing, with 20% down, the numbers are much higher. For that type of financing, a millennial needs about $66,432!
Summary
Millennials face significant challenges in homeownership that are unique to their generation. For these reasons, many are delaying homeownership for at least five years and living with their parents longer, to save more money, to make their dream of homeownership come true in the more distant future.
If you are in the market for a new home or interested in refinancing your current property, be sure to contact your trusted home mortgage professional.
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About the Author:
Babak Moghaddam graduated from University of Southern California in 1985. He entered the mortgage industry as a compliance auditor at the Bank of New York in 1986 and completed his masters in Business Administration two years later. After seventeen years in the traditional mortgage banking world Babak finally transformed this vision into his own practice in 2002 when he formed Charter Pacific Lending Corp, a mortgage company that has provided over $900 Million in residential real estate loans throughout Southern California. Babak and his team do things a little differently than other mortgage providers. They work as financial advisors, because they have come to realize that a mortgage is a very powerful financial tool. And just like any other financial tool, it should be managed as part of the overall financial management plan to reach every home owner’s long and short-term financial goals much faster. You can contact Babak for a free consultation and strategy session at (800) 322-1217 X103.