In case you haven’t heard, there’s a new homebuyer on the block. Millennials, individuals born from 1977 to 1995 according to Nielsen, have showed up in force as homebuyers, and the industry is taking notice.
According to Realtor.com, Millennials represented 45% of mortgages in 2018, while Generation X represented 36% and Baby Boomers represented only 17%. Millennials also spent more on mortgages in 2018 than all other generations combined. The confidence of Millennial homebuyers has been bolstered by better mortgage products. Products like HomeReady are designed to meet the lifestyle of this generation by offering super-flexible lending, even more so than Federal Housing Administration (FHA) loans.
The HomeReady mortgage helps first-time homebuyers, Millennials, and individuals living together become homeowners. According to the Pew Research Center, roughly 10% of Millennials cohabitate, or live together without being married. While Millennials have historically been the generation to postpone purchasing homes, they now want their slice of the American dream. Sixty-five percent of Millennial buyers are first-time homebuyers. However, there is no requirement that you must be a first-time homebuyer to qualify for this type of mortgage.
So, why now? Millennials have better jobs and are making more money. With stability and income, biting off the responsibility of homeownership doesn’t seem as daunting.
“I’ve got a stable job. I just got engaged. My fiancée and I are looking at how we can build our wealth. Purchasing our first home seems like the best next step instead of throwing our money away renting, especially with the new HomeReady mortgage,” said Michael McMurray, 25. “We can start the process now, before our wedding, and not be burdened by a huge down payment.”
According to a Trulia report, 56% of renters ages 18-34 said the down payment was the No. 1 obstacle to owning a home. By offering a low down payment with the HomeReady Mortgage, Fannie Mae is setting its sights on Millennials and lowering their barriers of entry. Right now, down payments can be as low as 3%.
More importantly, the source of that 3% is very flexible. Traditional mortgages require the borrower to provide a “minimum contribution,” or an amount of money down that they come up with on their own. Once potential homebuyers have met their minimum contribution, they can add additional funding sources to their down payment from gifts or down payment assistance programs. With HomeReady, funds from an approved down payment assistance source, a parent, relative or friend can fund the entire down payment and closing costs.
HomeReady also gives Millennials additional flexibility because borrowers can use income from non-occupying borrowers, such as a parent. The homebuyer can also use “boarder” income to qualify. A boarder is basically a roommate or someone renting space in your household. And as long as your roommate is moving into your new home with you, they will be helping you qualify and pay for your mortgage! Plus, non-borrowers’ household income is not used to disqualify borrowers from HomeReady mortgages.
By providing a plethora of payment sources in the mortgage application process, home buying is as accessible as ever. Many individuals who would have never considered purchasing a home can now qualify. HomeReady equips Millennials in Northwest Arkansas with a customized, reasonable and flexible plan, so they can experience the American dream of homeownership for themselves.
Tina Sewell is branch manager at Rock Mortgage in Fayetteville. Rock Mortgage is a division of Bank of Little Rock Mortgage. The opinions expressed are those of the author.