Millennials Are Overpaying For Their Homes And Here’s Why
Half of Millennials plan to buy their next residence, according to Freddie Mac data; today’s mortgage rates for conforming, VA, USDA, FHA, and jumbo home loans; and, how Millennial home buyers are paying list price or higher for homes way more often than other age cohorts.
Millennials Using Low-Down Payment Mortgages To Buy Homes
New data from the Freddie Mac shows that 50 percent of renters in their mid-20s and 30s plan to buy a home when it’s time to move.
The data comes from the government group’s “Profile of Today’s Renters”, a semi-annual survey of U.S. renters, and is consistent with Census Bureau data showing a five percent rise in Millennial homeownership rates since last year.
Millennials outpace every other age group with respect to home buying and homeownership, and many are becoming homeowners through the use of low-down payment loans.
Low-down payment loans are mortgages that don’t require twenty percent down from a lender. Examples of low-down payment loans include:
- The FHA loan, which allows for a 3.5% down payment
- The Conventional 97, which allows for a 3% down payment
- HomeReady and Home Possible, both which have 3% down options
Millennials are also using zero-down payment loans to help buy homes.
Active duty military, veterans, and members of the National Guard and Reservists get access to the 100% VA loan; and, buyers in less-dense suburban areas and using the 100% USDA loan.
Participation in both programs is higher this year.
And, so is the number of mortgage lenders offering niche low-down payment programs for buyers in certain professions. Teachers, doctors, dentists, and veterinarians all get access to low- and no-down payment mortgage loans and many are taking advantage.
Millennial buyers have learned that there are plenty of ways to buy a home without twenty percent down. And, it’s one of the reasons they’re ready to stop renting for good.
Today’s Mortgage Rates
Mortgage rates are moving lower today.
Rates for conforming loans, FHA loans, VA loans, USDA loans, and jumbo loans are down, which is reducing projected mortgage payments for buyers of homes and refinancing households.
At today’s rates, a 0.125 percentage point drop in rates correlates with a $7 savings per month per $100,000 borrowed.
When you comparison shop your mortgage rate, the quote you get from your lender will be different from your neighbor. Mortgage rates vary based on loan size, credit score, and where you live.
Your method for paying closing costs affects your mortgage rate, too. You can opt for full fees and discount point to get a lower rate; or, you can opt for your lender’s zero-closing cost option in exchange for a slightly higher rate.
Mortgage rates change multiple times daily and vary among mortgage lender, so talk with two or more companies before you choose your rate.
Aggressive Mortgage Rate Quotes
Millennials Pay More For Homes Than Anyone
New data from the National Association of REALTORS® suggests that Millennial home buyers pay more for homes as compared to other age cohorts.
The data comes from the 2018 Home Buyer and Seller Generational Trends report which shows that 44 percent of Millennial home buyers paid the MLS asking price for their home or higher.
This statistic is counter-intuitive.
It could even be argued that younger buyers glean more information online than older ones; and that because information dissymmetry is lower between Millennial buyers and their sellers, Millennial buyers should get “better deals”.
But that’s not happening. And, what is different between Millennial buyers and other age groups is how Millennials choose their real estate agent representation.
In the National Association of REALTORS® report, when asked what factors are most important in choosing an agent, more than any other age group, Millennials said that they want their real estate agents to be great negotiators.
However, the two areas in which they assigned the least importance are the agent’s experience in real estate, and the agent’s knowledge of a given neighborhood.
So, maybe it does make sense that Millennials pay more for their homes: their agents are mostly new to the business, and don’t have knowledge about the homes they’re trying to buy.
That’s a terrible combination of traits for the person you’ve entrusted to negotiate your purchase of a home. Buying a home is about more than the house itself. It’s about having a good team on your side, too.
Talk to two or more real estate agents as part of your home buying experience and get a feel for who can help you best, because nobody wants to overpay.
Looking for a solid referral to a real estate agent? Let’s talk about it.