Born between the early 1980s and mid 2000s, Millennials range in age from mid-teens to mid-thirties. They total more than 80 million individuals, representing the largest generation in the U.S. In fact, in five years they will make up 50% of the working population of the USA, and by 2025 they will claim three-quarters of all jobs.
At the same time, Millennials are considered the best educated generation. Almost 35% of 25- to 29-year-olds hold a degree, but are carrying some of the highest debt levels in history—including student loans and significant credit card balances. Many Millennials graduated and moved into the job market during the Great Recession. The lingering effect of challenging employment prospects are still with them today. The National Association of Realtors reports that people 36 years old and younger comprise the largest share of home buyers. When it comes to homeownership, Millennials think differently than their Generation X cousins and Baby Boomer parents.
Social media, movies, and television may be to blame for the expectations Millennials have with regards to the type of home they are able to purchase in California. Many first-time Millennial homebuyers start out by looking for their dream home rather than a starter home. Rarely is will that be the same house, and homebuyers may be disappointed to learn this. Let’s take a look at some of the struggles Millennials face when it comes to buying a home.
Deciding Whether to use a Real Estate Agent
A simple website isn’t enough. Millennials won’t use only one, but several sites and social media platforms to research and form opinions about the neighborhood, home, and ultimately the mortgage company during their homebuying experience. They expect a broad digital presence, so they may be less inclined to use an agent in their search.
They need to be aware a real estate agent knows what’s selling and at what price, which neighborhoods in California that are in demand or overpriced, and where the homes are that fit their client’s budget. An agent will also know how long a home has been on the market. That information that’s not always available online, and can affect the home’s price and enhance bargaining power.
Most real estate agents are ultimately working for the seller, in that commission is paid by the seller and only triggered by a sale. That’s why the focus should be on finding a buyer’s agent, if possible. They can be hard to find. However, agents of all kinds are generally bound by state real estate licensing laws to act in a fair and ethical manner.
A Faster Application and Closing Process
Millennials expect a speedy, reliable process in the online marketplace. And when it comes to mortgages, they will do their part to move the application along. They will look for companies that fully utilize their online presence from the beginning to the end of the loan process. They expect a simple and easy operation. They are digital natives that never experienced life without the internet and mobile phones, so each touchpoint along the home buying journey will need to connect. Companies are making efforts to update and upgrade, but cannot always meet these demands.
Not Having 20% for a Down Payment
A 20% down payment is ideal; a homebuyer will immediately gain equity in the home, and will enjoy lower monthly payments. However, not all Millennials are able to save 20% to buy a house—especially young adults in entry-level roles. They may not realize that there are many options that don’t require the full 20% down payment; however, those options come with their own pros and cons. For example, it’s possible to put 5% down, get one loan for 15% and a second for 80%. But those who put down less than 20% may be required to pay mortgage insurance—yet another monthly expense to add to a Millennial’s budget.
Not Considering Long-Term Expenses and Home Improvement Costs
Online mortgage calculators can help Millennial Californians determine monthly mortgage costs, but they don’t show the entire picture of owning a home in California. The mortgage is just one aspect of buying a home in California. Many Millennials don’t realize there are quite a few more upfront costs, including closing costs, appraisals, inspection, the first year of homeowners’ insurance premiums, and escrow accounts with three months of property taxes. In other words, there are costs beyond the down payment that Millennials in California need to be prepared to pay.
Renters rarely pay for property repairs or improvements. When Millennials transition from renting to buying and owning a home, they may not have considered or budgeted for a leaky roof, a broken dishwasher, or a struggling HVAC system. Further, popular home improvement shows may skew their perception of the difficulty, time, and costs of repairing or remodeling. Many projects don’t go as planned, and may end up costing more than estimated. Millennials should be sure they can actually afford a fixer-upper property in California as well as all the repairs and upgrades. They should also consider whether those improvements will add to the property’s resale value.
Golden State Mortgage Can Help
At Golden State Mortgage, we are a California based mortgage company, and specialize in FHA home loans for first time home buyers. FHA loans are a great option for first time home buyers and if this is your first home purchase then a California FHA home loans are probably your best option due to the low down payment and easier credit standards. Your down payment can be as low as 3.5% of the purchase price, and closing costs and fees can be covered by the seller. Call Golden State Mortgage today at 1-888-502-2136 or fill out the quick contact form to speak with a California FHA loan consultant and get a free good faith estimate.