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Home Buying

Millennials & Mortgages: The Facts

What are millennials looking for in a mortgage?

Millennials & Mortgages: The Facts


Despite spiraling home prices and a dramatic lack of homes for sale, the National Association of Realtors reported that last year, Millennials were the single largest group of home buyers. However, Millennials aren’t buying homes at the pace of previous generations because of their perception that they can’t afford to own. These are what they think are the biggest obstacles to getting a mortgage:

  • Insufficient credit score or history
  • Affording the down payment or closing costs
  • Insufficient income for monthly payments
  • Too much existing debt (e.g., student loans)


Why do Millennials feel so negatively about getting approved for a mortgage? Unlike their parents, Millennials entered early adulthood during a difficult economic recession, a world-wide financial crisis, and a big housing bust. They saw their parents struggle to make payments on underwater home loans and even lose their homes in some cases. Also, the majority of Millennials do struggle with student loan debt. They may not have the credit scores or income level needed to purchase a home. However, polls show that Millennials are comfortable opting for smaller spaces. In fact, they often prefer homes with just the essentials. (Of course, getting the latest tech or an updated kitchen can be a much sought-after bonus!)


What Millennials are looking for in a home:

  • Smart-home technology and features
  • Open floorplans
  • New, energy-efficient appliances
  • A location that’s within walking distance to lots of amenities
  • Just the right amount of space — more focused on square-footage quality, not quantity
  • A large master suite


Many Millennials are unaware of the different financing options that exist — particularly those that allow for a down payment of 6% or less. Actually, Millennials living in most places in the U.S. can afford the monthly mortgage payments of the median starter home. Given the estimated monthly income of $2,940 for Americans ages 25-34 from the Bureau of Labor Statistics, and median estimated monthly principal and interest payments of $945, millennials, on average, would have a monthly debt-to-income ratio of 32%. This ratio is within the range of 28% to 36% that most lenders look for when considering mortgage applications.


First-Time Homebuyers Loans are designed to encourage people with moderate incomes to venture into the real estate market, but they do come with a few restrictions. Most first-time buyer loans:

  • Cap the price of the house you can buy, so you’re not living beyond your means
  • Require you to live in the house
  • Have long-term benefits built in to encourage you to stay longer
  • Have a longer overall term, often locked to 30 years
  • Come with stricter requirements from home insurance companies
  • Require credit good enough to qualify for a mortgage


Three ways Millennials can quickly improve their credit to qualify for a mortgage:

  • Pay off debt more often. If you pay halfway through the month and then again at the minimum payment date, the carried balance reported to the credit bureau is lower.
  • Ask for a credit limit increase. If you max your card out every month, you’re showing a 100% utilization rate, and utilization rates factor into about 35% of your credit score.
  • Take out a dummy loan. Apply for a small cash loan, put the loan amount in savings, and pay consistently on it once a month.


Millennials ARE saving money! Many Millennials will tell you it’s a myth that they are spending their money on high-priced purchases and are not “into” denying themselves the “finer things of life” so they can save money for a down payment. Actually, 57% of Millennials are setting savings goals and two-thirds are meeting those goals. Nearly half of Millennials (age 23 – 37) have saved $15,000 and one in six have saved $100,000, according to the latest Better Money Habits Millennial Report from Bank of America.


The percentage of loans taken out by millennials has increased from 28.6% in October 2013 to 39.8% in October 2017, and with the youngest millennials in their late teens, the buying power of this huge  generation has not even hit its peak. To see if you can qualify to catch the wave of new Millennial homeowners, check with a Citywide Loan Agent. We can help you achieve your dream.