I’m a Real Estate Agent: 10 Ways Millennials Can Still Pursue Homeownership
The dream of homeownership has been a difficult one for many Americans lately. The combination of soaring mortgage rates, low inventory, inflation, and now, the added financial burden of the resumption of student loan payments, are all making the road very arduous.
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In turn, millennials–the largest adult generation in the U.S.–had a shrinking share of buyers in the market last year, according to the National Association of Realtors (NAR).
“Millennials can be divided into two groups, younger millennials, who are between [27] and 31 years old and older millennials, between 32 and [42], who are the ones that want to pursue home ownership,” said Dottie Herman, vice chair and former CEO, Douglas Elliman Real Estate. “I think as a group, millennials believe in owning their own home and like other groups, they are facing a very challenging market.”
Herman added that they represent the oldest group of first-time home buyers in history and they are also waiting longer to marry and have kids than any preceding generation.
Yet, experts said there are ways millennials can still pursue homeownership, and a few realtors shared some tips on how to go about it.
Rent First, Buy Later
One thing millennials can still do to pursue homeownership is find a house they would like to buy and make a deal with the homeowner to rent it at first, with the option to buy it later on, said Herman.
“Some owners will even take the rent amount off the price of the house,” she added.
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Cheaper Loan Options
Another tip, said Herman, is to look for loan options available that cost less money upfront. However, she noted that it’s very important to have a good credit history to qualify.
“Before applying, I suggest paying off all of your bills and again making sure your credit is good,” she said.
There are several mortgage products for millennials to pursue homeownership despite the current market conditions, she said. For instance, Private Mortgage Insurance loans (PMI) are loans where you pay less than 20% down or as little as 10%.
“This could be a good option for millennials who don’t have a lot of money to put down up front,” she said.
Another option is Federal Housing Administration loans (FHI), government-backed loans where you have a smaller down payment as little as 3% to 5.5%, she said.
Finally, an adjustable-rate mortgage (ARM) is where you ‘lock-in’ at whatever the current rate is and then, after a preset period of time, the rate expires and the homeowner can refinance the loan, added Herman.
Get a Gift or a Loan From Your Family
Another way millennials can pursue home ownership is by getting a gift or a loan from parents or family to put toward the down payment, said Herman.
“Millennial couples usually both work and are fairly good earners so eventually, they could pay a family member back if need be,” she said. “If working remotely is still an option, it would be wise to look for homes a little further away from big cities, depending on how long and how often they have to commute.”
According to NAR, while for 47% of buyers, the source of the downpayment came from their savings, 22% of first-time buyers used a gift or loan from friends or family for the down payment.
Lower Your Wants
You might have had your dream home in mind for a long time. But sometimes, less is more when it comes to such a big purchase.
To that end, Herman recommended making a list of needs and wants.
“If you are interested in a home and you have to give up a few wants in order to accommodate your needs, it should be considered. For example, if the house needs updating cosmetically but it is solid structurally, it can always be updated down the road,” Herman said.
Co-Buying and Co-Living
Other–and perhaps more creative–options include looking into purchasing a condo or an attached home or even co-purchasing a house with a friend, given the other person has a good credit history, said Herman.
House Hacking
Another innovative approach to homeownership is the so-called house hacking, where you live in one of the multiple units of your property and rent out the others.
“This strategy allows you to generate rental income that can offset your mortgage payments,” said Marshal Davis, a realtor and president of Ascendly Marketing. “It’s an excellent way to build equity while reducing your monthly expenses. We do this with a garage apartment.”
Offer a “Buy-Down” Mortgage
According to Herman, another option is to ask the seller to pay the closing costs or offer to buy down the mortgage by paying an upfront fee to reduce the interest rate for the initial period of the loan.
“This is a good choice for many millennials who plan on increasing their salary in the years to come,” she said.
As Rocket Mortgage explained, a buydown is a way for a borrower to obtain a lower interest rate by paying discount points at closing.
“Discount points, also referred to as mortgage points or prepaid interest points, are a one-time fee paid upfront. In the case of discount points, the interest rate is lower for the loan term,” according to Rocket Mortgage.
Play the Long Game
The most impactful thing millennials can do to become homeowners is think long-term and fully understand what the lifecycle of ownership will look like, according to Harrison Beacher, realtor and managing partner of Coalition Properties Group.
“We are older than we were when first coming out of college and trying to navigate our way through the recovery of the last financial crisis and we made it through the pandemic and we are coming into our peak earning years career and salary-wise,” said Beacher, a millennial himself.
In turn, having a more concrete perspective on the next 10-15 year earning potential and income/wealth-building horizon can help put minds at ease when looking at monthly mortgage payments that are higher now than they have been in more than a decade, he said.
“Time is the universal solvent when it comes to real estate ownership and the longer we own a property, the more options we have because even with higher interest rates, the principal gets paid down and the equity increases with time,” he said. “Not as fast as it has increased in the past five years but it will increase and help you build your wealth.”
Be Geographically Flexible
Of course, walkability and having everything close by is a dream but it will also be expensive, especially in big cities.
In turn, Beacher recommended thinking critically about moving further out for the space you seek.
“And realize that between food delivery and getting everything ordered, the quality-of-life sacrifice from living in the burbs is not that bad and you can still come into town for the nightlife and dining, and all that you want to experience–while spending less for your home,” he added.
Be Ready To Move Up in the Future Into Your Dream Home
“Don’t be afraid of the starter home even if you are in your late 30s,” said Beacher.
Current rates and inventory are making it tough to afford that forever home with limited resources. Still, one of the best ways to get there is to begin with a starter home that you know you will outgrow and plan to move up in 4-6 years, with the equity you are earning from that starter home to help you fuel the forever home purchase, he noted.
“Dream home deferred does not have to be deferred forever!” he said.
Source: https://finance.yahoo.com/news/m-real-estate-agent-10-140009669.html?guccounter=1