Persistent myths about housing down payments could be holding millennials back from buying a home, according to an analysis by the Urban Institute.
In spite of the 19 million millennials in the 31 largest metropolitan statistical areas being mortgage ready, the generation has been slower to transition into homeownership than previous generations. Millennials have a homeownership rate eight percentage points lower than that of other generations at the same point in their lives, resulting in 3.4 million fewer homeowners.
These mortgage-ready millennials have been characterized by Freddie Mac as being no older than 40 and not having a mortgage. However, with FICO scores of 620 or above, debt-to-income ratios of 25% or less, and no recent foreclosures, bankruptcies, or serious delinquencies, they have strong enough credit to qualify for a mortgage.
According to the analysis, the down payment may be the one remaining hurdle faced by millennials who have the income to buy a house. Most renters say saving for a down payment is an obstacle to homeownership and that most find it at least somewhat difficult to save for a down payment.
Additionally, many potential homebuyers think they need to put at least 15%. However, the median down payment was only 5% in 2017.
The analysis also noted that there is limited awareness of state programs that provide grants and loans to make homeownership more attainable. Average assistance in various states ranges from $2,436 to $21,171.