Today, many millennials have found jobs and are out on their own, but the stability of their jobs is still not there. A 2017 article by Gallup noted that “21% of millennials say they’ve changed jobs within the past year, which is more than three times the number of non-millennials.”
Millennials wrecked by student debt
The economy of higher education has gone off the rails, loading many millennials (and their parents) with education debt that was easily secured but hard to pay off. Consequently, you have a natural delay in home buying caused by an unhealthy debt to income ratio. The Federal Reserve’s “Consumer & Community Context” report has the facts:
- “Outstanding student loan balances have more than doubled in real terms (to about $1.5 trillion) in the last decade, with average real student loan debt per capita for individuals ages 24 to 32 rising from about $5,000 in 2005 to $10,000 in 2014.”
- “In surveys, young adults commonly report that their student loan debts are preventing them from buying a home.”
- “We estimate that roughly 20% of the decline in homeownership among young adults can be attributed to their increased student loan debts.”
Parents lend a hand
Many of the older folks who would have provided assistance to first-time buyers were hurt as well during the housing crisis of 2008. Some parents are just beginning to be able to assist their children with buying their first home, but this assistance is on the rise, according to the National Association of Realtors’ “2018 Home Buyers and Sellers Generational Trends” report.
As most builders know, there are typically three ways that parents assist first-time buyers.
Sometimes, parents choose to become co-applicants on the mortgage. A co-applicant means that the parents’ income, assets, liabilities and credit will be assessed and considered as part of the mortgage approval. In most of these situations, the parents become nonoccupant borrowers, which means they do not occupy the property but are equally liable for the mortgage and deed of trust.
In some cases, parents elect to give a gift toward the down payment. In that case, the borrower and donor must complete and sign a form called a “gift letter,” which specifies the date and amount given, as well as the relationship between the borrower and donor. The letter also contains a statement that the funds are a gift and no repayment is required or expected.
The lender must be able to determine that the gift funds are provided by an acceptable source and are the donor’s own funds. That’s why you may also be required to provide a copy of the donor’s withdrawal slip or bank statement and the borrower’s deposit slip or bank statement.
Most homebuyers work with traditional lenders such as a bank or credit union to take out a mortgage, but parents with liquidity can also be an excellent source for private lending.
Millennials test the value of ownership
Given the various challenges millennials have faced—job scarcity, higher education costs and the Great Recession—their progress toward traditional milestones like finding a stable job, feeling confident enough to make big commitments or finding a solid life companion have all been delayed by about three to six years. This group will jump into ownership when the time is right. Given their embedded fiscal conservatism, I personally do not blame them for being a bit slow to jump into homeownership. It is the building community’s job to make this an easy, fun and rewarding experience.