About half of millennials looking for homes have to go to their parents for help, according to a new study by Trulia
. Debt, poor credit and a lack of savings were the chief reasons millennials were unable to come up with their own down payments, the survey reported.
“Saving up for a down payment is a big obstacle and it can make the home buying process even more intimidating,” said Trulia real estate expert Michael Corbett. “Millennial home buyers need to know that if they are going to turn to bank of mom and dad for a down payment they should treat it like a loan. Write up a contract and determine what is best for monthly payments. This will and can avoid money woes among family members.”
Among those for whom loans from parents aren’t an option, 37% plan to work a second job, while 22% said they would use state or federal programs to help them into home ownership. What many of them wouldn’t do, however, was give up certain luxury items in order to save for a down payment. While the 65% who said they wouldn’t give up their cars could argue for the necessity of having transportation, other items named were a bit less vital:
Items millenials would never give up to save for a down payment:
- Car: 65%
- Smartphone: 45%
- Cable: 20%
- Netflix subscription: 15%
- Vacations: 14%
- Eating out/takeout: 13%
- Clothes shopping: 10%
- Organic shopping: 10%
- Gym membership: 7%
- A morning latte or cappuccino: 5%
Most millennials – 68% -- are looking for a home under $200,000, according to Trulia. But nearly half don’t know how much they would need for a down payment, and almost 2 out of 5 among those who do know would put down less than 10%. That’s a mistake, according to Corbett.
“When buying a home today, it's critical to be conservative and to safeguard your purchase. Forget the ‘no money down,’ or the 5 and 10 percent down payment purchases. Many banks will be hesitant to give you a mortgage otherwise,” he said. “The goal should be a 20 percent down payment. It gives you some equity right from the start, gets you a lower interest rate, reduces your monthly mortgage payment and lets you avoid PMI monthly fees. All of which really adds up to significant savings. Best rule of thumb: If you are close, but can't quite hit the 20 percent benchmark, you may want to look at a slightly lower price tag rather than over overextend into something you might not really be able to afford just yet.
Finances are the biggest roadblock to home ownership for millennials, but a new survey shows they’d rather ask their parents to pony up a down payment than give up their cars.