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 tends to be 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 you could build your personal wealth over time. Beyond the financial benefits there are also the emotional perks that come with owning your own home. As a renter you are limited to what you can do with your place (unless you’re okay with risking your security deposit), while as a homeowner you are free to customize your space to suit your 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 can be as low as 3 percent. For example, as a prospective buyer you can pursue a low down payment loan, but you may be required to pay for private mortgage insurance – 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 them achieve their goals. 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 bank offers down payment grants of 3% of the home’s purchase price, or up to $10,000, whichever is less, to eligible homebuyers in nearly 50 cities – 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 homebuyers. 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.
*Qualified borrowers must meet eligibility requirements including, but not limited to, being owner occupants, meeting certain qualifying income limitations and purchasing a home within a certain geographical area. Minimum combined loan-to-value must be greater than or equal to 80%. The America’s Home Grant Program is a lender credit. Program funds can only be used for nonrecurring closing costs including title insurance, recording fees, and in certain situations, discount points may be used to lower the interest rate. It cannot be applied toward down payment, prepaid items or recurring costs, such as property taxes and insurance. Borrowers cannot receive program funds as cash back. For properties not located in a low- to moderate-income census tract, the maximum borrower/co-borrower annual qualifying income limit is 80% of Federal Financial Institutions Examination Council Area Median Income. For properties located in a low- to moderate-income census tract, there are no income limits. These income limits are subject to change without notice. The home loan must fund with Bank of America. Bank of America may change or discontinue the America’s Home Grant Program or any portion of it without notice. Not available with all loan products, please ask for details.
**Qualified borrowers must meet eligibility requirements including, but not limited to, being owner-occupants, meeting certain qualifying income limitations and purchasing a home within a certain geographical area. Minimum combined loan-to-value must be greater than or equal to 80%. Program funds can be applied toward down payment only. Borrowers cannot receive program funds as cash back in excess of earnest money deposits. Down Payment Grant program may be considered taxable income, a 1099-MISC will be issued, consult with your tax advisor. May be combined with other offers. For properties not located in a low- to moderate-income census tract, the maximum borrower/co-borrower annual qualifying income limit is 80% of Federal Financial Institutions Examination Council Area Median Income. For properties located in a low- to moderate-income census tract, there are no income limits. These income limits are subject to change without notice. The home loan must fund with Bank of America. Down Payment Grant may only be applied once to an eligible mortgage/property, regardless of number of applicants. Bank of America may change or discontinue the Bank of America Down Payment Grant Program or America’s Home Grant Program or any portion of it without notice. Not available with all loan products, please ask for details.
