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Beating the Numbers
Four Ways Millennials Can Own a Home Saving Only $4,000 Per Year

Every month a myriad of research and articles are published regarding millennial spending habits and home buying. Recently, comments from a wealthy developer made waves in the news blaming the low homeownership rates among millennials to their frivolous spending habits – including $19 Avocado toasts and $4 coffees. 

 

But we ask – is it frivolous spending habits that make young people less likely to buy a home? Or are young people today, burdened with greater amounts of student debt than previous generations, working with tighter budgets, and unable to save enough to afford a down payment?

 

To answer this question, SP Group aggregated data specifically representative of the millennial age group to analyze their average income and average spending levels. Our analysis shows that with a conservative budget that only covers the necessities, an average millennial is unable to save more than $4,000 per year. At this savings rate, it would take over a decade for many millennials to afford a 20% down payment to purchase a median priced home of $216,000.  To illustrate this finding, we created an interactive "Time to Down Payment Calculator", which can be used below. In addition, as this calculation only includes necessities, any unexpected expense such as an emergency car repair or health issue, could significantly decrease potential savings and the ability to save for a down payment.

Fortunately, there are solutions that can help a millennial afford a down payment to purchase a home.  The solutions below include both traditional and innovative ideas

  1. Consider Low Down Payment Mortgages - Twenty percent is the standard down payment on a home and a prudent strategy to pursue whenever possible. However, there are loan options with lower down payment requirements. National Association of Realtor's Profile of Home Buyers and Sellers shows that for at least the past three years the the median down payment for first-time buyers has been 6%.  There are government solutions and conventional loans from private lenders with down payments that can be as low as 3%. These mortgages typically come with a borrower paid insurance requirement.

  2. Explore Down Payment Assistance Programs - These programs offer zero interest loans or grants in amounts that will range from a few to tens of thousands of dollars. The assistance can be used towards the down payment, closing costs, principal reductions, and/or repairs.

  3. Research First-Time Home Buyer Programs - In addition to down payment assistance, many state level housing agencies offer programs targeted to first-time home buyers. Typically, these programs offer mortgages with a below market interest rate, as well as reduced closing costs, reduced fees, and no mortgage insurance requirements. Additionally, USDA offers rural mortgage programs to help low- and moderate-income individuals purchase homes in certain regions.

  4. Think Outside of the Box - Recently there have been a few innovative solutions introduced to help potential home buyers who may not have sufficient funds for a down payment. Earlier this year, Loftium began offering down payment loans to be repaid through the rental of spare bedrooms on Airbnb. Some private lenders, such as SoFi also offer low down payment and no borrower-paid mortgage insurance.

Homeownership is the dream for many, but the traditional down payment too often presents a hurdle to achieving that dream. While it may seem like a savings account flush with cash is far off… owning a home doesn’t have to be.

For further information, please contact us at info@spgroupusa.com.

Tool Tips

The Time to Down Payment Calculator uses the average expenses of millennials (age 25 to 34) to determine an annual savings potential and then computes the amount of time needed to save for a down payment. The user can adjust the down payment percentage and the home price to compute a custom savings time. 

Data Sources

*Not age specific