Home Buying for Millennials - You Don't Need a 15% Down Payment

There have been recent reports from the KCM Blog and asset management company Nomura that suggest that the Millennial generation has been struggling with not only student debt, but also the general idea of homeownership.

The generation at large seems hesitant to move towards purchasing a first home. But why?

According to a recent article in Housing Wire, it appears linked to the lack of a full understanding about the mortgage process:

Analysts say it’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment. It’s that they think they’re not qualified or they think that they don’t have a big enough down payment. (emphasis added)

Indeed, a survey from Zelman & Associates revealed that 38% of those between 25-29 years old, and 42% of those between 30-34 years old, believe that a minimum of 15% down is required for a down payment on a home purchasing transaction. The reality is quite different.

Putting less than 15% down, and other optimistic real estate realities for Millennials

There is a handful of useful information that many Millennials fail to realize, and VP Christina Boyle of Freddie-Mac has a great list for just this occasion:

  • 15% is not an expected norm for a down payment. In fact, a prospective homeowner can "get a conforming, conventional mortgage with a down payment of as little as 5 percent (sometimes with as little as 3 percent coming out of their own pockets)”
  • Freddie Mac's purchase of mortgage with down payments under 10% more that quadrupled between 2009-2013
  • 1 in 5 borrowers who took out conforming, conventional mortgages in 2014 put down 10% or less
  • Borrowers who are qualified can reduce the down payment to as little as 3% by lining up gifts from family, grants, or loans from non-profits or public agencies

The bottom line?

If you have ruled out home ownership for your near future, make sure you know all of your facts before resigning to renting another year (as purchasing a home has been shown to be cheaper than renting across the nation). Make contact with your local real estate agent and trusted mortgage professional to see if you are, in fact, able to start looking for a place of your own. The answer may surprise you.

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