There are so many Economic reports that come out, sometimes it is difficult to read “between” the lines, to understand what they are really saying. I just read an article by Dr. Anthony B. Sanders, Distinguished Professor of Real Estate Finance at George Mason University in Fairfax, Virginia. In it, he pretty much says that Millennial Renters may be ready to buy a home, but they are stuck on “Rental Street.”
Dr. Sanders feels that one of the largest “barriers” for “Millennial Renters” to over come is the ability to save for a Down Payment. We agree.
However the Millennial Renters have some options to cover the expense of buying a home, including:
- First Time Home Buyer Down Payment Grants available through the State of North Carolina
- You can get a Non-Occupying Co-Borrower to help you with payments and down payment requirements
- The USDA Home Loan program and the VA Home Loan Program require no down payment at all!
We also believe that one of the barriers to home ownership for Millennial Renters is the ability to qualify for a mortgage, with deferred student loans. Once the loans are out of deferment, and we know what the payments are – it’s really not a challenge. If the payments are “fixed” and we can confirm those, again – not as much of a challenge. However… if the student loans are IBR (and many of them are), with no payments being made, and deferred on a 12 month basis… it can be down right impossible for us to qualify you for a mortgage!
Are Millennial Renters Ready to Buy a House?
A recent study commissioned by Forbes magazine says that over 80% of the Millennial Renters they surveyed want to live in a suburban setting. Much like the ones we call “Bedroom Communities” in and around major cities in NC like Raleigh, Charlotte and Greensboro. It also found that the “older” 30s something Millennial Renters are expecting to be “married and mortgaged” – looking for good schools as they settle down.
In fact, according to a study by market researchers Frank N. Magid Associates, Millennial Renters want to buy a home in the suburbs over cities by a margin of 2 to 1 once they marry. This affects roughly 77 million people, according to Pew Research, and its good news for the Housing Market in NC. Demand is high for “starter homes” across our state!
There are many solid reasons for moving out of “Trendy Millennial Rentals” in the core cities and into your own home:
- New families quickly outgrow their city Condos and Apartments. It’s one thing for a single person to live in a small apartment, but the situation can grow cramped even for a couple. Add a child to the mix and things really start to get complicated, especially when you have to figure out the logistics of getting baby, a stroller and the ever-expanding bag of baby supplies up three flights of stairs.
- Suburban areas also tend to be more family friendly. While cities offer young people plenty of “bright lights, and big city” entertainment, once they start a family, young parents seek park life over nightlife. In that respect, suburbs offer considerable appeal with playgrounds, bike paths, community events and other family oriented perks.
- Schools are a key consideration, with suburban areas spending more on students and teacher salaries than urban districts. Those spending disparities result in clear gaps when it comes to student outcomes. For example, the high school graduation rate in the 50 largest U.S. cities was 53% while 71% of students in the suburbs graduate, according to data from the America’s Promise Alliance.
- Owning your home trumps renting. While you get no financial benefit from paying rent each month, home ownership represents an investment you can live in. And with prices being kept in check, now is an excellent time to buy.
- And finally, according to a recent Federal Reserve Board study; homeowners new worth (assets less debts) on average is $190,000, while renters net worth is just $5,000.
Hmmm, seems like home ownership works on a lot of different levels.
When Should Millennial Renters Apply for a Mortgage?
If you will be in the market to purchase in 2015 – we think there are a few things you should go ahead and do, one of them is to speak with a NC lender as soon as possible. Why?
But the MAIN REASON Millennial Renters should speak with a mortgage lender even six or eight months before you purchase is this:
With the “mortgage MESS” of the last year, credit scores have become one of the MOST IMPORTANT parts to a loan approval… ESPECIALLY in North Carolina. Because our programs are limited, we rely even more heavily on high credit scores to qualify buyers, and get them the best interest rate. If you have a “good” score of 640 – we could get your FICO score up to 720 if we had 6 to 8 months! This change in your score could mean the difference of over $75 a month in your payment!
Let’s see… $75 a month savings, live in a house for 4 years, that’s a MINIMUM SAVINGS of $3600! Just for speaking with a loan officer EARLIER in the process? So if you are considering a purchase, call now!
Start a Savings Plan – While it’s true that you can certainly buy a house in NC with no down payment – there are expenses associated with buying a house. We recommend that you have at least $1000 in savings before you try to go through this process. One of our clients told me she was going on an “Extreme” Savings Plan, and was adopting a plan to save as much as possible every month. Often times, borrowers will go into a CHEAPER rental situation for 6 months prior to buying, start a part time job – there are lots of ways to save some money, and it’s just a great habit to build on.
Another reason to call us early in the process? There are mortgage programs you might not realize you qualify for! Did you know that you can buy a HUD Foreclosed home for just $100 down payment! There are TONS of options available. Don’t let the image of a very small piggy bank hold you back from owing a home!
You can’t really compare rental payments with a home loan payment. With the Home Loan (mortgage payment) you are also covering your taxes and Insurance on the house. You also pay Interest – most of that payment might be tax-deductible!
So what are you waiting on? Tired of Renting? Buy a House!
Millennial Renters also need to remember that you buy a house, you get a RAISE! (It’s TRUE! Check out the Tax Advantages of Home Ownership!) Call Eleanor and Steve Thorne, Mortgage Lenders dedicated to helping First Time Home Buyers , for more details at 919-649-5058!