The Rent That Will Not Stop Rising
Since May of 2016, the median rent in the United States rose almost 2.8 percent to an average of $1,445 per month. With potential millennial buyers struggling to find a home they can afford, millennials are renting longer to cut costs.“Searching for the ‘right’ home has become a drawn-out affair and rising prices require more savings for a down payment,” says Zillow senior economist Aaron Terrazas. Source With so many millennials hitting the workforce and not able to afford a home, developers are having a hard time keeping up with the property demand. In richer cities, developers are notorious for responding to the rental demand by building high-end properties that do no accommodate for the market, forcing millennials to pay almost more than half of their income on rent. James Burrell, a broker at San Diego County Property Management says rent is increasing 5 to 10 percent at his properties because of utilities, property taxes, and general expenses increasing overall. Source
Down Payments and Debt
Purchasing a home is much more than paying for a place to live; it’s a major investment of both time and money,” said Doyle Williams, Country Financial’s Executive Vice President. “Once you’ve done that, there’s a benefit to being a homeowner: You are building equity with every mortgage payment.” Source Almost half of 18-to-34-year-olds said that affording a down payment for a home was one of the biggest financial barriers. Typically, a 20% down payment is required to buy a home to avoid PMI (private mortgage insurance) . According to census.gov, the median sold home price in June of 2019 was $310,000 dollars; almost a $62,000 down payment that should be fronted before purchasing. On average, 22-to-32-year-olds owe roughly $28,706 dollars in student loan debt that is expected to be a financial burden for at least ten years. For every 10 percent in student loan debt a person holds, their chance of home ownership drops 1 to 2 percent according to the Federal Reserve. Source. If a millennial has more than 36 percent of their income going to pay off debt, they can forget about applying for a mortgage.
FHA Loans and First-Time Home Buyers
There are some options that can help alleviate the pressure in buying a home. FHA loans are one of the most popular mortgage loans used by first-time home buyers due to their low down payment and credit requirements. With a credit score of 580, only a 3.5% down payment is required. This is a great option for millennials that can’t save enough for a 20% down payment and also have below-average credit score. There are some drawbacks with the FHA loan, so make sure you explore all of your options before finalizing any plans.