An incredibly low level of home ownership amongst millennials is a huge problem from many different perspectives. From a financial standpoint, it could cause huge trouble for the real estate market somewhere in the future. Second, it’s a sociological issue. It implies that the majority of the population doesn’t own the homes that they live in.
Still, the fact remains that millennials aren’t buying homes. Now, the biggest debate around this issue is whether they don’t want to buy homes or that buying homes is more difficult than before.
Millennials are more likely to live as digital nomads, which is why it doesn’t make sense for them to stay in place. Second, millennials are somewhat more cynical by nature, which means that they have no trust in financial institutions.
Now, aside from these problems regarding motivation, is it that hard for millennials to buy a house? Let’s find out.
Is It Harder than Before?
The first question worth asking is whether it’s harder to buy a home today than it was several decades back. The shortest answer is – yes, it’s much more complex. Here are several factors making this seemingly simple matter complicated.
Home prices are higher than wages
The simplest answer to this question is a purely mathematical one. The monthly cost for an average mortgage is higher than a person on an average salary can afford. There’s a limit when it comes to the debt-to-income ratio where lenders won’t find the borrower eligible for the loan in question. A lot of millennials simply don’t pass this simple test. In other words, they can’t afford to buy a house. This creates a huge problem. Not only are they not buying homes, but their finances are also stretched so thin that a lot of them aren’t even starting to plan for their retirement.
They are partnering later in life
Millennials are partnering up later in life. Not only are they not getting married as early, but there also are some studies implying that they’re not even cohabitating as a trial marriage. Millennials are simply approaching family life differently than other generations. According to a survey, only 3 in 10 millennials live with a spouse and a child. In other words, they don’t feel the prerogative to buy a home.
Boomers are not selling
Not a lot of millennials are feeling encouraged to build their own home or even purchase a newly-built property. At the same time, boomers are not selling at the desired rate. This creates a decrease in supply, which increases cost and a limited number of options. Seeing as how boomers hold the majority of homes in the States, this has created a serious bottleneck that shouldn’t be underestimated.
They are already spending too much on rent
The cost of rent has gone significantly up, which makes millennials unable to save up enough for the down payment. Sure, in the long run, a monthly credit payment could come to be lower than the rent, but the problem is that the current rent cost might be gatekeeping a lot of millennials from even entering this process. It may sound trivial, but for millions of millennials out there, the problem is more than serious.
What Can Millennials Do to Overcome these Problems?
While all the above-listed problems are quite serious, the truth is that you can do a few things to overcome them. Here’s how a millennial can improve their odds of becoming homeowners.
The first thing to do is learn everything about the mortgage approval process. In this process, you need to set your budget, get pre-approved for the mortgage, find a house, pick a lender, and apply for a mortgage. You also need to have the home of interest appraised and inspected. You need to pay special attention to the underwriting and be ready for everything that the closing day may bring. Keep in mind that there are too many factors to take into account, which is why it’s essential that you take this process in a step-by-step manner.
Resolve your current debts
As we’ve already mentioned, once the mortgage comes, it will become one of the most significant monthly expenses. So, you need to resolve some of your old debts as soon as you can. This way, paying the mortgage will become more manageable. Most importantly, resolving your debts will boost your credit rating, which will ensure that you get better loan terms.
Pay off your student debts and save some money
Keep in mind that, for the majority of millennials, the biggest financial obstacle lies in paying off their student loan. There are some ways to repay it faster. For instance, you can make some extra payments, refinance it if you have good credit and a steady job, or make bi-weekly instead of monthly payments. This last part will ensure that you pay it off twice as fast. Still, the best course of action is to refinance since, if you have a good job and a decent credit rating, you can virtually cut your interest rate in half.
Once you’re done with this, you need to use this excess money to create a savings account. We’re not going to sugarcoat this but owning your home is a pretty expensive thing. While it’s a privilege, it’s also a liability and you never know when you’ll need to make an emergency repair. This is why it’s essential that you have an emergency/savings fund. Your cash flow will already be stretched thin and the last thing you need (while under a mortgage) is to look for payday loans.
At the end of the day, owning your home is more difficult than it was in the past, but there’s no point in wallowing about it. Things are as they are and while you may feel that this is a bit unfair, not playing the game (just because it’s rigged against you) is not an option. Fortunately, with the right effort and organization on your part, it’s possible to buy a home of your own. If anything, the fact that it’s harder means that the accomplishment is greater, as well. The higher the risk, the higher the reward.