The recent, portentous years of boom-and-bust has had an enormous impact on millennials. Also known as generation Y, millennials are that part of the population born between the early 1980s and the year 2000. Today’s youth unemployment, for example, remains very high in many parts of Europe, where it has peaked at over 50 percent in Spain, 44 percent in Italy, 35 percent in the Balkan states, and around 19 percent in the UK.
These are frightening social metrics, and the figures don’t appear to be attenuating anytime soon. One of the gravest consequences, for millennials, of the boom-and-bust years is that they find it that much more difficult to assemble the cash needed for property down-payments. Due to lower levels of wealth, higher student debts, and perilous economic circumstances, millennials feel stuck – and this is, to a large extent, quite understandable.
But they needn’t remain stuck. There are several avenues that millennials can take, should they invest the time to learn where these avenues lead – avenues that we explore over the course of this blog.
Millennials, Mortgages, and Mayhem
So in the current economic climate, how do millennials fare?
To answer this question, we must turn to a recent Federal Reserve survey. The survey found that millennials are 15 percent more likely to apply for a mortgage if the down payment is as low as 5 percent. The survey also found that buyers are 40 percent more willing to purchase a new home if the down payment were reduced. This is an enormous shift, and would no doubt assist many tens of thousands of prospective property owners.
Low down payments were popular at the height of the economic boom – with down payments remaining as low as 3 percent in many cases. Since the crash, lenders have become reluctant to come down to this level. Nonetheless, options are available to millennials – such as the FHA. First introduced in 1934, the Federal Housing Authority has moved from supplying 5 percent of the mortgage market in 2006 to 25 percent by 2010 – a colossal transfer.
But what can the FHA do for millennials?
The FHA offers an attractive mortgage rate – with just a 3.5 percent down payment required. However, with this inducement comes various preconditions, including that:
- Buyers must have mortgage insurance
- Upfront payment of 0.85 percent of the total loan
However, the FHA isn’t the only institution available to millennials – there are alternatives, such as:
- US Department of Agriculture: No down payment required, as it finances the total loan for single family homes in select rural districts.
- Fannie Mae: Offers a low down payment option in the region of 3-5 percent.
- Freddie Mac: Launched the Home Possible Advantage scheme, yet another scheme requiring 3 percent down payment.
- Veterans Administration: Veterans qualify for no down payment mortgages, and no mortgage insurance is required.
- Local housing agencies: There are almost 2,500 homeownership schemes available nationwide. Around 3 out of every 5 of these schemes are limited to first-time buyers, though.
So whether it’s the FHA, the US Department of Agriculture, or local housing agencies – there are ways that millennials can acquire finance at a rate that suits them. While the years of perpetually low down payments may be over – for now at least – millennials should take the time to learn about the other, no less viable, financial avenues. It’s only by better educating the millennials of today that they can have any chance of getting into their first home.
The point is this – millennials need educating. While circumstances are understandably challenging for many millennials, the opportunities are there for many – if not most – millennials to take that first step on the property ladder. Buying a home isn’t always an easy option, but it’s an option available to those willing to grasp the opportunity with both hands. It’s only through better educating millennials that we – as professionals in the real estate sector – can play our role in helping generation Y get beyond that down payment barrier.