A recent survey by apartmentlist.com concluded that Millennials simply don’t save enough money – even when they don’t have student loans — to make the 20% down payment needed for conventional home buying.
The survey found that although 79% of Millennials plan to buy a home, 37% are not saving anything toward a down payment and 41% are saving but not on a regular basis. Among even older Millennials, 70% are saving less than $200 a month.
College Grads — With or Without Loans — Are Not Saving Enough. In “Is Student Debt Stopping Millennials From Home Ownership? the apartment search company reported that, based on more than 30,000 responses from its annual renters’ survey plus starter home data from Trulia:
“In general, college-educated millennials with student debt have to save for 10 years to afford a 20% down payment, compared to 5 years for those without debt. Our analysis also suggests, however, that this is at least partly by choice – millennials with student debt payments spend just as [much] each month as those without, instead of cutting back on discretionary expenses to save more for a home.”
The survey found that 58% of college educated Millennials have monthly student loan payments. The average loan payment is about $410 per month, but 37% pay less than $200/month. Clearly, loan repayment impacts savings. However, the survey also concluded that to afford their student loan payments:
“Millennials are reducing the amount they save, instead of cutting back on discretionary expenses like travel, dining out, and shopping…. College graduates (with or without debt) have significantly higher incomes [than Millennials without a college education] , but aren’t saving much more: overall, they allocate 25% of incremental income towards rent, 65% towards other expenses, and only 10% towards savings.…Based on this, it seems that millennials may have the capacity and ability to save more for a home if they so choose.”
Millennials Without A College Degree Face Uphill Battle. The study found that home ownership was very difficult to attain for Millennials who do not have a college education, and therefore generally have a lower income. According to the survey results, “Nearly all metros [metropolitan areas] across the United States are unaffordable for millennials without a college degree.”
What is Enough for a Down Payment? The bottom line is that college graduates, both with and without loans, need to cut down their discretionary spending and ramp up the amounts they put into savings if they want to become home owners. That’s a good idea, although certainly not a new one. And, putting 20% down will generally mean getting a lower interest rate and avoiding the need to buy mortgage insurance, saving significant money over time. However, there are options for those wanting to buy without such a hefty deposit. For example, Wells Fargo just announced a program that requires only 3% down.
If you need information about the possibilities for buying your own home, give me a call at 904-570-1216 or shoot me an email at email@example.com.
Posted on 05/27/2016 at 12:15 PM