As a millennial, chances are you’ve heard a lot about what you and your peers can and can’t do, including the suggestion that millennials can’t afford to buy their own home. And while millennials are dealing with higher amounts of student debt than their older counterparts, affordable homeownership is still possible. Unfortunately, many in this age bracket self-select out of homeownership before they ever investigate the topic and truly understand their options.
According to a recent survey, millennials cited two main reasons why they can’t afford to buy a home. The first and most significant factor was the cost of living in relation to income, which was cited by 45 percent of those surveyed. The second factor, cited by 23 percent of those polled, was student loan debt. This debt has proved to be a considerable obstacle, currently clocking in at $1.6 trillion in the United States. With this extra debt, millennials struggle to afford down payments and closing costs associated with buying homes. Younger prospective buyers also face the hurdle of not knowing where to start – buying a home can feel like a daunting step and the overwhelming majority of millennials haven’t received an education on the dos and don’ts.
Despite these challenges, millennials shouldn’t feel like they’re without hope when trying to buy their first home. It’s actually an achievable goal once you separate fact from fiction. To help you better understand what’s possible when you first start to consider homeownership, the team at Mic set out to debunk 3 common misconceptions about homeownership.
Myth: Renting is more affordable than buying a home
With the price tag that comes along with a home, many falsely believe that it is more affordable to rent than to buy. While every situation is different, in general, buying a home is a more financially-savvy move and provides better savings in the long-run. While rental prices can continue to increase, fixed-rate mortgage payments remain consistent which means homeowners build more personal wealth over time. Beyond the financial benefits there are also the emotional perks that come with owning your own home. Renters are limited to what they can do with their place (unless they don’t mind the risk of not receiving their security deposit), while homeowners are free to customize their space to suit their taste and lifestyle.
Case in point: homeowners are not experiencing buyers’ remorse. In fact, according to a study from Bank of America, a staggering 93 percent of people who have bought a home are happier because of it, with 83 percent saying that they wouldn’t go back to renting.
Myth: A 20 percent down payment is not within my means
When it comes to busting homeownership myths, the most important one to set straight is the misconception that buyers must put down 20 percent. In 2019, 77 percent of first-time buyers put down less than 20 percent for a down payment with the median being surprisingly lower than expected at just 7 percent.
The truth is that the down payment amount depends on a number of factors, including the type of loan and the lender’s requirements. In some cases, down payments were as low as 3 percent. For example, prospective buyers can pursue a low down payment loan, but they may be required to pay for private mortgage insurance, or the monthly payment that protects the bank should the buyer stop paying their monthly mortgage. It’s important to do your research because not all low down payment loans require mortgage insurance and these savings could be the difference between buying your dream home and letting it pass you by.
Myth: I wouldn’t be eligible for home buyer grants or assistance programs
Millennials aiming to be homeowners are often unaware of the resources, such as down payment grants, that are available from banks and other lenders to help get them achieve their goal. In the U.S., there are countless initiatives focused on helping homebuyers overcome hurdles to homeownership. One such program is the Bank of America Community Homeownership CommitmentTM. This initiative addresses a major hurdle faced by many millennials – the upfront costs of homeownership. In fact, according to the 2019 Homebuyer Insights Report, 69% of prospective homebuyers say the biggest barrier to homeownership is saving enough money for a down payment as well as closing costs.
Through this program, Bank of America has committed $5 billion to help people get on the path to affordable homeownership. Specifically, the Community Homeownership Commitment™ is designed to assist with down payments, as eligible homebuyers in nearly 50 cities can get grants of 3% of their home’s purchase price (up to $10,000) – no repayment necessary. Homebuyers may also be eligible to receive up to $7,500, which can be used for non-recurring closing costs or to buy down their interest rate.
These are great options for homebuyers, but it’s important to remember that these programs can be complex. The best thing to do is to speak to a Bank of America lending specialist to help you understand your options.
So rest easy, would-be home buyers. The house of your dreams might actually be within reach, with a little understanding and a little bit of help.
This post is sponsored by Bank of America.
