The Pulse

Millennials & Mortgages

This generation is struggling with down payments, sometimes getting help from parents

by Mike Brown

Excerpts from part one of LendEDU’s two-part millennial & mortgages study examined trends amongst current millennial homeowners. Reprinted with permission. Read more here.

08/06/2019 – When the 2008 Financial Crisis struck, millennials—now between the ages of 23 and 38—were either just old enough to fully grasp the severity of the situation or were well into their careers. It is well documented that the recession was ignited by a subprime mortgage lending crisis. Operating in a wild west lending environment, financial institutions were supplying mortgages to consumers whose finances really should’ve prevented them from qualifying. This led to obscenely high mortgage default rates that led to the eventual bursting of the subprime bubble.

With millennials having a front row seat to the mortgage-induced financial crisis, LendEDU wanted to better understand how this generation is approaching the home buying experience, specifically as it pertains to mortgages. Millennials are now the largest living generation and make up a vital component to the economy as they are either in or are approaching their highest earning years.

This means that this often-chastised generation will be absolutely crucial in keeping the housing market healthy. And if history tells us anything, it’s that homeownership is one of the pillars of a thriving American economy.

So, LendEDU surveyed 1,000 millennials to analyze home ownership and mortgage trends for this imperative generation. Below, you will find part one of this study, which specifically pertains to millennials that already own a home.

Full Survey Results

(The following data derives from an online survey of 1,000 millennials between the ages of 23 and 38.)

(1) Do you currently own a home?

  • 58% of respondents answered “Yes”
  • 42% of respondents answered “No”

(2) – Asked only to those who answered “Yes” to Q1) Did you use a mortgage to finance the purchase of your home?

  • 83% of respondents answered “Yes”
  • 17% of respondents answered “No”

(3) – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) When shopping for a mortgage, did you obtain quotes from multiple lenders to compare and choose the best option or just one quote from one lender that you ended up going with?

  • 80% of respondents answered “I obtained multiple quotes from lenders before deciding on the best option.”
  • 20% of respondents answered “I only went to one lender when shopping for a mortgage.”
  • (4)– Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) When shopping for a mortgage, did you handle the process online or through an in-person mortgage broker or lender?
  • 20% of respondents answered “From applying to closing, I handled the entire process online.”
  • 38% of respondents answered “From applying to closing, I handled the entire process in-person.”
  • 42% of respondents answered “Some combination of both.”

(5) – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Was your mortgage lender a traditional bank like Bank of America or Wells Fargo or was it a non-banking lender like Quicken Loans or Loan Depot?

  • 73% of respondents answered “I went through a traditional bank like Wells Fargo.”
  • 22% of respondents answered “I went through a non-banking lender like Quicken Loans.”
  • 5% of respondents answered “I’d rather not say.”

(6) – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Was the mortgage that you took out an FHA-insured loan?

  • 75% of respondents answered “Yes”
  • 25% of respondents answered “No”
  • (7 )– Asked only to those who answered “Yes” to Q1, “Yes” to Q2 & “No” to Q6) Were you aware of the FHA-insured loan program before taking out your mortgage?
  • 55% of respondents answered “Yes”
  • 45% of respondents answered “No”

(8) – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) As a percentage of the total purchase price, what was the size of your down payment when closing on your home?

  • As a percentage of the total purchase price, the average down payment was 16%.
  • As a percentage of the total purchase price, the median down payment was 15%.

(9 )– Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Are you currently paying private mortgage insurance (PMI)?

  • 52% of respondents answered “Yes”
  • 42% of respondents answered “No”
  • 6% of respondents answered “I’d rather not say.”

(10) – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Do you regret taking out a mortgage to finance the purchase of your home?

  • 13% of respondents answered “Yes, the cost of the mortgage is really hurting my bank account.”
  • 17% of respondents answered “Yes, I should have waited longer to purchase a home.”
  • 5% of respondents answered “Yes, for another reason.”
  • 48% of respondents answered “No, I received a good deal on my mortgage, and it was a wise investment.”
  • 12% of respondents answered “No, I wanted to become a homeowner at whatever cost.”
  • 3% of respondents answered “No, for another reason.”
  • 2% of respondents answered “I’m not sure/I’d rather not say.”

(11 )– Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Did your parents or guardians assist you financially in making the down payment on your mortgage?

  • 30% of respondents answered “Yes”
  • 69% of respondents answered “No”
  • 1% of respondents answered “I’d rather not say.”

(12 )— Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Has the cost of owning a home and taking out a mortgage forced you to delay any of the following life goals? (Select all that apply)

  • 17% of respondent answers were “Marriage”
  • 16% of respondent answers were “Having children”
  • 7% of respondent answers were “Having a pet”
  • 15% of respondent answers were “Changing jobs”
  • 4% of respondent answers were “Other”
  • 41% of respondent answers were “None of the above”

(13 )– Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) At the moment, is there anything in your life that could impact your ability to make monthly mortgage payments?

  • 18% of respondents answered “Yes, I have overwhelming credit card debt or another form of debt.”
  • 33% of respondents answered “Yes, my savings are limited and an emergency expense from something like an accident would drain them.”
  • 10% of respondents answered “Yes, my job security and/or line of work is not stable.”
  • 39% of respondents answered “No, I feel secure in meeting my monthly loan payments.”

(14) – Asked only to those who answered “Yes” to Q1 & “No” to Q2) What is the reason as to why you did not need a mortgage to finance the purchase of your home?

  • 41% of respondents answered “I bought it outright.”
  • 18% of respondents answered “I was denied a mortgage and became a homeowner through something like a rent-to-own agreement or a loan from my parents.”
  • 33% of respondents answered “I inherited the home from a family member.”
  • 8% of respondents answered “Other”

More Than Half of Millennials Are Homeowners, Most of Them Using a Mortgage

To kickoff this study of millennial mortgage trends, we first wanted to get a better sense of how many millennials are homeowners, in addition to how many took out a mortgage to facilitate the home-buying experience.

We wanted to be able to live on one income if need be and have a 6 month emergency fund built up before buying a house. We delayed having kids until we were able to reach these goals...

When it comes to millennials—who are currently between the ages of 23 and 38—58% of them are homeowners according to the LendEDU survey. According to U.S. Census data from 2015, the overall U.S. homeownership rate is 63.7%, while the homeownership rate for those between the ages of 45 and 54 was 70.1%, and 75.8% for those between 55 and 64 years of age. With the oldest millennials currently being 38 years old, it appears that this generation is on a solid pace to reach, or even eclipse, homeownership rates set by previous generations when it eventually falls into the over 45 age grouping.

One can logically assume that millennial incomes will grow with age, which should result in an increased homeownership rate above the 70.1% that currently exists for those between the ages of 45 and 54.

Average Millennial Homeowner Making a 16% Down Payment, Leading to More Frequent Use of Private Mortgage Insurance

When our millennial home-owning respondents were asked to state the size of their down payment as a percentage of the total purchase price, the average answer was 16%, while the median answer was 15%. The general rule of thumb regarding the size of down payment when closing on a home is that it should be 20% of the entire mortgage amount. Of course, this threshold can be tough to meet for young millennials that haven’t reached the peak of their earnings potential, and the results from the study illuminate this struggle.

The mortgage down payment trends from our report also explain the results from Question 9 of the survey about private mortgage insurance (PMI).

More Than Half of Millennials Are Delaying Other Life Milestones to First Become Homeowners

To gauge millennial eagerness when it comes to owning a home, we asked the current homeowners if they delayed important life milestones due to the cost of owning a home and taking out a mortgage. 59% of millennial homeowners with a mortgage indicated that the cost associated with achieving those milestones prevented them from attaining other goals.

More specifically, 17% of millennials said that the cost of owning a home and taking out a mortgage has delayed marriage, 16% stated it delayed having children, 16% have had to put off having a pet, 15% haven’t been able to change jobs, and 4% answered that homeownership has prevented them from achieving something else not listed.

Millennials are clearly prioritizing homeownership over other life milestones, which makes sense in some regards and not as much sense in others. For example, it may be more savvy to first get married before taking out a mortgage and owning a home as dual incomes can lead to purchasing a nicer home and getting more favorable mortgage rates and terms.

However, it is likely more sensible to become a homeowner before owning a pet or having children as both of these things are going to be quite costly over an extended period of time, and you would want to first ensure that you are secure in meeting monthly mortgage payments before taking on additional expenses.

Steffa Mantilla, a married millennial, put off having children until she and her husband had secured their finances:

Having children was delayed. My husband was in the Navy for the first 8 years of our marriage. After he got out, we moved to Houston and lived in an apartment for 5 years. Our intention was to save up a good downpayment for a house.

We wanted to be able to live on one income if need be and have a 6 month emergency fund built up before buying a house. We delayed having kids until we were able to reach these goals.

We took out the mortgage three years ago and now have a 21-month old son. It ended up working out but we were fortunate that neither of us had bouts of unemployment or any major unexpected expenses pop up. Otherwise, we would have been delayed by a few years most likely.

 

Read the entire report here.