The Millennial Challenge: Homeownership

big house in suberbs

It has been said that “the ache for home lives in all of us, the safe place where we can go as we are and not be questioned.”

Where in the name of Jay Electronica does that leave the Millennials among us? You know; the overly analyzed champions of legalized marijuana, delayed marriage, and social liberalism. 18-34 year olds make up a scrum of perpetual renters and childhood home dwellers that probably couldn’t qualify for a traditional home loan if it fell out of Ariana Grande’s auto tune machine and landed directly in their collective laps. It’s hard to blame Generation Y; after all, we grew up during the dotcom 90’s and then graduated into the worst recession the country had experienced since the 1930s. A childhood defined by economic prosperity leading to a bourgeoning adulthood where a net worth of $10,400 makes you wealthier than half of your fresh faced 18-34 year old peers; that’s irony only a Generation Xer could appreciate.

The burdens of student loan debt and reduced annual income make it easy to understand why the familiar template of milestones established by previous generations has been all but forgotten.

Compare the student loan obligation of Millennials and their Generation X counterparts. Today, 42 percent of young people have student loan payments, on average totaling nearly $18,000. In 1998, the same demographic went largely unscathed, with only 23 percent facing indebtedness. At the time, borrowers were only carrying about $10,000 in balances.
Compounding this issue is how little young people are making yearly. In the past 7 years the median income of 18-35 year olds has decreased by $2,300. An annual salary of $35,300 is greater than what’s brought home by 50 percent of those within this age bracket. No wonder homeownership has dropped from 40 to 35 percent among post recession Millennials.

Oddly, despite a vast ideological gap between those born pre and post 1980, young people have retained the same desire to purchase homes as their predecessors. In a recent poll conducted by TD Bank of 18-34 year olds, 84 percent of respondents cited a strong desire to own a home. 50 percent even went as far as calling homeownership “a vital component of the American dream.”

Unfortunately, desire and ability are two very different things. Given the minimum credit requirements and various other underwriting guidelines attached to conventional loan applications, financing for younger than 35, potential home buyers will be tough to come by. However, good news does exist for this segment of the American population in the form of USDA, VA and FHA home loans. While not as outwardly alluring as say Nikki Minaj, these loans offer something that even the pink haired rapper does not: substance.

How does limited or no money down sound? Considering a quarter of this generation currently has accounts showing late payments and 50 percent are benefitting from some form of financial aid, I’d assume it sounds pretty good.

USDA Loans:

USDA loans are government insured loans used to purchase property in rural areas. Essentially, the Department of Agriculture guarantees lenders that in the event of a borrower default, they are reimbursed the principal amount, this make financing more accessible for applicants who otherwise would not be eligible to receive it. Millennials with spotty credit benefit from the flexible credit guidelines offered by USDA loans. Furthermore, no down payment is required and the mortgage cost can be paid partially via gift or grant. Meaning, a parent, family member, close friend, employer or labor union can provide you with financial assistance in paying off the total sum of the home. Additionally, the USDA offers borrowers the opportunity to qualify for Rural Grant programs which provides funding to offset the personal cost incurred in the home purchase.
This loan is ideal for urbanites hoping to move as far from their parent’s basement as possible.

VA Loans:

Veterans are provided with many entitlements post (and during) service, probably the most beneficial for eligible applicants is the VA guaranteed home loan program. This program features lessened underwriting standards, and no minimum qualifying credit score or down payment requirement. Gift funds can be used on mortgages acquired through the VA loan program. The only stipulation attached to receiving a no strings attached wad of cash and using it to pay off your mortgage, is that it must come from an appropriate source, IE a family member or employer and needs appropriate documentation. For all of us who spent the mid 2000’s watching the Wire that means a paper trail.

FHA Loans:

Given the high rate of 18-34 year olds migrating to Portland over the past 30 years, the most applicable home loan for young people is seemingly the FHA loan. Similar to the USDA and VA loan programs, the FHA loan comes with an attached guaranty. The Federal Housing Administration insures the loan provided from the lender to the borrower. If the borrower stops making payments and forecloses, the government will re-pay the investor the original loan amount. This makes it easier for applicants to qualify for a mortgage. Credit scores as low as 580 or 500 in some circumstances will not negate eligibility. Neither will a previous bankruptcy nor foreclosure (must have occurred at least 2 and 3 years prior to application). This loan provides better interest rates than conventional mortgages do. This is paramount if the borrower has monthly student loan obligations. Lower mortgage insurance payments are needed as well resulting in a smaller monthly payment.

Unlike the USDA and VA home loan programs, the FHA loan calls for the borrower to make a down payment. Different from traditional loans that require a down payment of as much as ten percent, the FHA down payment can be as low as three percent. However this down payment can be negated through the assistance of gift money. This donation can come from a family member, employer or payment assistance group.

Parents (or relatives) can further help by cosigning for the loan, thus improving your odds of qualifying.