Millennials and Mortgages: What Is There to Know?
Millennials have faced major obstacles in entering the home buying market. Most of this generation, born near the end of the 20st century, came of age during a housing crisis and the subsequent recession. As a result, it’s taken longer for most Millennials to be in position to buy their first home. While Millennials have overcome many hurdles to reach this point, many challenges remain.
Mountains of Debt
Student loan debt has reached crisis levels, and Millennials hold a huge portion of that debt. Many also had the unfortunate timing of graduating during or slightly before the recession, making it difficult for them to find jobs with decent wages – or any job at all.
Millennials were hit with a double whammy as a result. Their high debt load and low income struggles both work against their debt-to-income ratios, making it difficult to qualify for mortgage loans. If they do qualify, interest rate offers are not favorable.
In addition, Millennials may be forced to carry high-interest credit card debt to get by during their early, post-collegiate years. Not only does this add to their overall debt burden, it also makes saving for a down payment very difficult.
Starter Home Shortage
Currently, the housing market is faced with greater demand than supply. The number of affordable starter homes – the homes that Millennials are seeking – is critically low. Prices are rising disproportionately in this market due to the imbalance, making it even more difficult for Millennials to meet their home ownership goals.
Supplies of starter homes are not likely to increase in the near term. Even though housing starts are on the increase, most single-family housing developments don’t fall within the starter home market. High land, labor, and material costs, along with regulatory burdens, make it difficult for developers to see suitable returns on affordable housing.
Are FHA Loans the Answer?
FHA loans are popular among Millennials, likely because of the low down payments involved. However, this generation is particularly sensitive to adding more debt, and they are fully aware that a low down payment means a greater debt load for the same home. The high mortgage insurance premiums associated with an FHA loan may also deter some Millennials from taking the home ownership plunge.
Unfortunately, growth in wages is lagging well behind the rise in home prices. Millennials may not have the time to wait for a larger down payment. You can help by fully explaining the tradeoffs of purchasing now versus waiting for a future opportunity, and guiding Millennials to homes within their price ranges and mortgage terms that fall within their budgets.
Support Your Local Millennials
Millennials represent the future of the housing market, with approximately one-third of the mortgage loans over the last two years. It’s important for your mortgage loan business to understand the special challenges this generation has had to overcome, and assist them with realistic offers and sound advice. Serve Millennials well, and they are very likely to pay you back with repeat business for future mortgage loan needs. Call (310) 209-8600 to see how LeadPoint can help you gain insight into the Millennial mortgage market and target Millennial homebuyers.