For millennials struggling to buy homes, it's mom and dad to the rescue, a new survey says.
When debt and lack of savings stand in the way of homeownership, what’s an eager millennial to do? Ask mom and dad to pitch in, according to a new Trulia survey.
Half of young adult homebuyers, unable to make the investment on their own, said they plan to ask family members for help with a down payment. Meanwhile, 65% said they would not give up their car in order to save to put money down — and 45% said they need their smartphone. For 15%, parting with their Netflix subscription was also not an option.
Almost half of respondents said they didn’t know how much money they’d need to put down in the first place. Of those who did know, nearly two in five said they would put down less than 10%. A 20% down payment is considered best, because it qualifies buyers for the best interest rates and generally eliminates the need for mortgage insurance.
The combination of asking family for money and putting so little down could be “a little bit of a recipe for disaster,” said Michael Corbett, Trulia’s real estate expert.
“I would rather someone not purchase a home, than purchase a home they can’t afford or have to stretch to afford,” he added. Because it creates a “nasty catch-22”: a smaller down payment means a larger mortgage, which means lenders will impose a higher income requirement.
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They may be stretching to afford it, yet millennials comprised the largest group of recent buyers, 31% of purchases, according to the National Association of Realtors’ Generational Trends Study.
This was no surprise to NAR chief economist Lawrence Yun, who noted that younger buyers have the same “American dream” aspiration to own property as the older generation. Which poses a conflict: they “have the desire but not the capacity.”
Indeed, for many, existing debt doesn’t allow them to save enough for a down payment. Student debt delayed homeownership for 54% of first-time buyers, according to a NAR study. Of those facing difficulty, 56% of “Gen Y” attributed the delay to student loans.
The numbers show that young buyers need to wait until they’re ready, Yun and Corbett agreed. Given that homeownership is a major expenditure, buyers should have a good sense of whether they’ll need to relocate in the near future, and how secure their job is.
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In the event of unemployment, Corbett said, a millennial buyer is unlikely to have enough saved up.
“You don’t want to be strapped,” he added. “When the music stops, you don’t want to be caught.”