Millennials are currently between the ages of about 24 to 36 years old, historically the prime age for first-time homebuyers. Lenders are anxious to see millennials embrace homeownership, yet they have been slow to do so. What is keeping millennials from purchasing that first home? There are several factors to consider:
-Many people in this generation watched their parents struggle though the Great Recession and possibly even lose their home during the housing crisis.
-In response to this crisis, the federal government initiated sweeping reforms which have hampered the ability to qualify for mortgage financing.
-Many millennials have chosen to marry later and have kids later. Strapped with student loan debt, many opt to live at their parents’ homes longer.
This combination of factors has stunted housing market for several years, but as millennials reach their next life stage, they are finally entertaining the idea of purchasing a home of their own. However, obstacles persist – both real and imagined.
First, the real challenges. Housing inventory is at a 40-year low. In southeastern Pennsylvania, there are three buyers available for every one unit for sale. In some areas of the country, this ratio balloons to as much as 10:1. The basic rules of supply and demand are driving prices higher creating a “seller’s market.” There are often multiple bids, offers above asking price, fewer closing cost concessions from the seller and less consideration about buyer’s inspection results.
Simultaneously, interest rates are on the rise. We have seen half a dozen hikes during the last three years and will likely experience just as many in the next three years as the economy continues to chug along. Those millennials who are ready to buy are experiencing pricing and financing pressure.
There are also the “imagined” hurdles. Many millennials have a false idea of what it takes to purchase a home. They incorrectly believe that you have to amass significant funds to purchase a home, you need a perfect credit score or they don’t realize what they can afford.
The truth is, there are many first-time homebuyer programs available and many only require a 3% down- payment. You can qualify for many of these programs with a credit score of just 620. The major mortgage investors (Fannie Mae and Freddie Mac) even allow for as much as a 50% debt-to-income ratio which permits those with other obligations such as student loan debts and first car payments the potential to qualify. In addition, there are grants, CRA programs and a myriad of products that can help millennials purchase their first home.
For millennials serious about purchasing a home, educate yourself on the financing options available and determine how much home you can comfortably afford. Then work with a mortgage professional to obtain a pre-approval complete with supporting income and asset documentation. A pre-approval can help differentiate you as a buyer because the seller gets a better sense of the buyer’s viability among multiple offers and demonstrates that the buyer is financially sound and serious.
As outlined, there are obstacles, but they are not insurmountable. While on the rise, interest rates remain reasonable and there are a number of financing options available to buyers, particularly first-timers. Univest is fortunate to offer products like Pennsylvania Housing Finance Agency (PHFA), FHA, VA, USDA and the Federal Home Loan Bank First Front Door Grant. To accommodate homebuyers, many of these products offer low, and sometimes zero, down payment options. In addition, some of these programs allow for secondary financing, gift funds, and/or grant monies designed to offset expenses associated with a home purchase. The First Front Door Grant, as an example, will provide up to $5,000 towards a qualified buyer’s down payment and closing costs.
While low real estate inventory, rising interest rates and sales prices can create impediments to a millennial’s home purchase experience, buyers can benefit from, and take advantage of, the expansive menu of products at Univest. Knowledge is power and we pride ourselves on equipping our clients with specially-designed products to help create an edge over rival offers. If you are ready to begin your home-buying journey, the Home Loan Consultants at Univest can help. Contact us at 877-723-5571.
Univest Bank and Trust Co. is an Equal Housing Lender.