A RentCafe study found that 52% of millennial households – which include families and groups living together – owned homes in 2022. For the first time ever, more than half of millennials own a home.
Yet, according to a survey by Apartment List, a growing number of millennials have given up on homeownership (24.7%), with 74% saying they’ll never be able to afford one.
The biggest stumbling blocks are bad credit and no downpayment. Specifically, 67% of millennial renters who plan to buy a home one day have no money for a down payment, and 42% have bad credit.
In spite of this, millennials can improve their chances of owning a house by 50 by taking proactive measures and adopting good financial habits early on. The following are 12 things millennials can do now to prepare for home ownership by age 50.
1. Set a savings goal for your down payment.
There’s a misconception that millennials aren’t savers. In reality, we are. But, that doesn’t we know how much to save for specific financial goals, such as a down payment.
In the aforementioned report by Apartment List, an online rental platform, two-thirds of aspiring millennial homebuyers said they couldn’t save up enough money for a down payment.
For the uninitiated, a down payment is usually a portion of the price of the home paid upfront. Your mortgage covers the rest of the property’s value.
In general, the bigger your down payment, the less risky you are for lenders. It’s possible to lower your mortgage interest rate if you put down at least 20% at closing.
However, your down payment will vary depending on your loan type, the price of the home, and your personal financial situation.
- Conventional loan. The down payment requirement may vary from lender to lender. Some may require 5%, while others may require only 3%. Lenders may offer lower down payment loan options if your credit score exceeds 620.
- FHA loan. The down payment required for an FHA loan is 3.5%. In order to qualify, your credit score must be 580 or higher. You must put down 10% if your credit score is between 500 and 579.
- VA loan. There is no down payment requirement for a VA loan. As well as the length of your service, the reason for your discharge plays an important role in determining your eligibility.
- USDA loan. A USDA loan does not require a down payment, just like a VA loan. It is, however, necessary for your home to be located in an approved rural or suburban area and meet specific income requirements.
2. Make savings a priority as soon as possible.
You should start saving as soon as possible. Every little bit counts over time, even if it’s a little. Put away at least 10% of your income each month if you can.
But it’s just not the amount of money you’re saving. It’s also where you keep your money.
For example, high-yield savings accounts offer an easy way to save money while earning higher interest rates than average. Essentially, these accounts can help your money grow without investing. In addition, higher balances earn you more interest.
You should save money in banks and banking platforms that offer competitive interest rates to maximize your savings. To save the money before spending it, you may want to set up automatic direct deposits into a high-yield savings account just for your down payment.
3. Increase your income.
Your journey toward homeownership can be expedited by increasing your income. Start by looking for ways to increase your earning potential at your full-time job. You could pursue advanced education or certifications or learn new skills to earn a raise. You could also take on overtime work.
You can also start a side business, freelance, or take advantage of the gig economy. Plenty of side hustles are perfect for millennials, such as becoming an affiliate or drop shipping. From there, you can put the extra income towards saving or paying down debt.
Related: 10 Lucrative Side Gigs for Millennials Looking to Earn Extra Money
4. Examine your amortization schedule.
Review your student loan amortization schedule to get on the right track for home buying by dealing with your student loan debt.
“Usually, I recommend people pay off their student loans in 10 to 20 years as long as their interest rates are at 5% or below so your money can work for you in other ways,” said Michael Shea, a CFP in Nashville, Tennessee. “This way, you know when the payoff date will be, and you can get back into a budget-friendly payment schedule. This may help free up some money to save for other financial goals such as a house down payment if you’ve been very aggressive on paying down student loans.”
5. Live below your means.
What’s the best way to save money? Living within your means.
This means reducing unnecessary expenses. The most important thing, however, is to ensure that you don’t spend more than you make.
6. Improve your credit score.
To qualify for a mortgage, you need a good credit score. Some mortgage lenders offer options tailored to individuals with lower credit scores, such as Rocket Mortgage and CitiMortgage®, but raising yours before applying is better. After all, having a good credit score will result in lower interest rates. Over the course of your mortgage, this can save you thousands of dollars.
You can increase your credit score by paying your bills on time, not making late payments, and using no more than 30% of your revolving credit.
Related: Credit Scores 101: Everything You Need to Know
7. Get pre-approved for a mortgage.
Once you can save some money, you should consider getting pre-approved for a mortgage. By doing this, you will know how much you can borrow. In addition, it will streamline the home-buying process.
8. Take advantage of first-time homebuyer programs.
Many governments and organizations offer first-time homebuyer programs — especially for millennials. In addition to financial assistance, these programs may also provide reductions in interest rates or down payment assistance.
Check out what programs, such as FHFA or HomeReady, are available in your area and see if you qualify. It is possible to significantly reduce the financial burden of purchasing a house by taking advantage of such initiatives.
9. Consider co-owning or investing in real estate investment trusts.
It may be possible for millennials to enter the housing market through co-ownership or investing in Real Estate Investment Trusts (REITs) in specific expensive markets. By co-owning a property, you are sharing the costs and responsibility of the property with others.
Real estate investment trusts own, operate, or finance income-producing properties. REITs are a way to gain exposure to the real estate market without taking on full ownership responsibilities.
10. Think outside the box.
There are a lot of creative ways to save for a down payment, such as:
- Selling any items that you no longer use.
- Identifying areas to freeze your spending, such as not buying new sneakers for three months,
- Knocking out any high-interest you have.
- You can maximize compound interest on your CD deposits by laddering them.
- Using windfall money, such as tax returns or holiday bonuses.
Another option? You might want to consider buying a fixer-upper. It can be a great way to save on the purchase price and be a lot of fun to renovate a property.
11. Consult with a financial advisor.
If you need help creating a financial plan or are unsure where to start, consult a financial advisor. By working with them, you can assess your financial situation and develop a plan to reach your goals.
Moreover, a qualified financial advisor will suggest the right questions before purchasing a home. For example, although you might be most interested in your mortgage qualification, you might ask a good advisor, “What is the right amount of home I should purchase, considering all of my short- and long-term objectives?”
12. Be patient.
You must be patient about the housing market because it can be highly competitive. When you can’t find your dream house right away, don’t give up. The right place for you will eventually be found if you keep saving and looking.
Conclusion
The goal of owning a home is a big one, but millennials can definitely accomplish it. If you follow the tips listed above, you can achieve your homeownership dream by 50.
Listed below are some additional resources you may find helpful:
