Millennials are waiting longer to buy homes – but that is because buying a home is harder than it was for their parents’ generation.
Millennials buying their first home today are likely to pay 39 per cent more than baby boomers who bought their first home in the 1980s, according to Student Loan Hero. The value of homes has increased by 73 per cent since the 1960s, when adjusted for inflation.
Housing is also less affordable for millennials compared with the overall population, whose incomes are likely higher because of more work experience.
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Millennials are also spending more on renting and are busy tackling a record level of student-loan debt, making it hard to take on a mortgage loan, Business Insider’s Akin Oyedele previously reported.
As a result, it’s taking millennials longer to save. But while it’s no easy feat, becoming a homeowner is possible. We talked to five millennial homeowners who managed to save enough to buy their first home.
They shared the savings strategies and tactics they used to become first-time homebuyers, from house hacking and assistance programmes to budgeting and opting for lower down payments, as well as their advice on how to pave your own path toward home ownership.
Remi Ishizuka, 30, bought an US$875,000 home in Los Angeles by creating a separate savings account and visiting a financial coach.
Ishizuka saved diligently for five years before purchasing her US$875,000 home in 2018.
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“I cut back on expenses, and had a really strict monthly budget that I stuck to, and used a financial coach to help me stay accountable and within this budget each month,” says Ishizuka, now a full-time blogger at Rrayyme.
Her financial coach advised her to open a separate account for money allocated for a down payment.
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“I would save in chunks whenever I got paid,” she said. She recommended those who do the same should keep their home savings account separate from their emergency savings account so they never have to touch it.
Ishizuka opted for a 30 per cent down payment, meaning she paid US$262,500 up front and has a 30-year fixed mortgage of US$3,800 a month. She suggested meeting with several loan companies before choosing one – she said she nearly got scammed into a bad loan without realising it because it was the first person she met with.
To her, old-fashioned saving is the key to buying a house.
I would save in chunks whenever I got paid
“Save, save, save as much as you can, even though it may suck in the short term,” she said. “And set a minimum amount that you put down to save for the down payment no matter what.”
She added: “Think of the bigger picture. It’s easier said than done, but by saving up you’re investing in something bigger that is going to benefit greatly down the road. Imagine no more rent one day!”
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Willy Harris and his girlfriend hired contractors to build a US$204,000 house in Jacksonville, Florida, using a state assistance programme.
Instead of purchasing a house, Harris and his girlfriend had a new house built in 2017 – and they used Florida’s first-time homebuyer programme to help afford it.
The assistance programme allows first-time homebuyers with qualified income and purchase-price limits up to US$15,000 to be used toward a down payment and closing costs. If the homebuyer lives in the home for five years, the loan is forgiven.
Qualifying for the programme also qualified him for a Federal Housing Administration home loan that required a 3 per cent down payment, said Harris, who was 24 at the time.
They put down a US$1,000 deposit to reserve the lot, while the grant covered their US$7,750 closing costs and US$6,150 down payment. The remaining amount of the grant went toward the principal of the home loan, Harris said.
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“Since we only put 3 per cent down on the loan, we elected to pay a monthly mortgage insurance of US$109,” said Harris, who oversees online and warehouse operations for a local interior-design firm. “The way to get out of paying mortgage insurance is putting down 20 per cent on the home loan. We plan on staying in this house five years or less. Paying mortgage insurance for five years will cost US$6,450. Paying the 17 per cent more at closing would have cost US$34,680.”
Their mortgage is currently US$1,503 a month.
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Harris recommended creating a savings plan. Figure out how much you will be able to afford, and keep in mind mortgage amounts are based on the length of the loan, the interest rate, and the amount of owner equity, he said.
Build a spreadsheet to track your expenses, then get prequalified for a loan so you can crunch all the numbers and make an educated decision on purchasing a home, he said.
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“The key to being successful when purchasing your first home is purchasing a home that is significantly less than what you qualify for,” he said.
A couple in their mid-to-late 20s saved enough money for a US$400,000 home in Atlanta by adhering to a strict budget.
A couple in their mid-to-late 20s (who requested anonymity) working in development for a children’s hospital and as a sales manager at Pepsi bought their house in 2018 without doing a “crazy savings programme”, the wife told Business Insider.
But before moving to Atlanta, they had a gap in their rent that helped boost their savings, she said.
“When we were moving, it ended up taking much longer than expected, so we ended up moving into a family member’s house for about eight months, which allowed us to save about US$20,000 since it was rent-free,” she said.
But that was only one-fourth of their 20 per cent down payment of US$80,000. They said they saved the rest by adhering to a very strict budget, frequently sitting down to talk about what they thought was reasonable to spend on things like food, eating out, clothes, and the like.
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“Our mortgage is about US$2,000 a month, but that is what we were used to paying in rent,” she said, adding that they hope to pay off the 30-year mortgage sooner by paying double in months when they don’t have a lot of expenses.
“Paying rent year after year will drain a bank account, so as soon as you have the money aside for a down payment, it’s a good idea to invest in your own home,” she said. “However, at the same time, you also need to have a rainy-day fund for large unforeseen house expenses in case your AC breaks or roof leaks.”
By living with their parents, Jessica Booth and her husband were able to save the money they would have put toward rent to purchase a US$360,000 home in Long Island, New York.
Two years ago, at ages 28 and 26, Booth and her husband bought their house for US$360,000, not counting expenses for lawyers and other fees.
By purchasing their home during a time of low interest rates, they could opt for a lower down payment of 5 per cent, or US$18,000, leaving them with US$3,000 monthly payments on their 30-year mortgage, Booth told Business Insider.
They tucked money away for several years and spent a full year of “really trying to save”, she said.
“We both made it a point to put a portion of our money aside each paycheck,” said Booth, who was an editor at the time.
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She said her husband (then her boyfriend) “cut back on expenses, although I wasn’t as good with it.”
“We also both chose to continue living with our parents to save money on rent,” she said. “In the end, I also received financial help from a family member that also made a big difference in my savings.”
Booth advised being patient and not getting overwhelmed when it comes to saving for your first home.
We both made it a point to put a portion of our money aside each paycheck
“It’s going to take at least a year to put aside enough money, more if you haven’t been saving before that, and more if you’re buying on your own,” she said. “It can be really intimidating, but it’s not impossible.”
She added: “Cut back on spending, and before any big purchase, picture your dream house and think about if you really need the item or not. I would also suggest looking into the prices of the kind of home you want so you’ll have a better idea of exactly how much you need to save.”
Paula Pant bought a US$225,000 triplex in Atlanta and used “housing hacking” to bring housing expenses down to zero.
In early 2011, at the age of 27, Pant and her boyfriend (now her husband) bought their first home with a down payment of US$26,000, slightly over 10 per cent of the home’s US$225,000 cost.
Between the two of them, it took a year to save. While they didn’t use a regimented savings budget, they averaged saving US$1,000 a month each.
The month I made more, it would go to savings. I wasn’t consciously thinking I was saving for a home
“I was self-employed, and my income was volatile; I just adjusted to living on the lowest amount I would make a month,” said Pant, who is the founder of the site Afford Anything. “The month I made more, it would go to savings. I wasn’t consciously thinking I was saving for a home – I was saving money for a safety net.”
They bought a triplex and rented the other two units to their roommates. The rent was enough to cover their US$1,200 monthly mortgage, bringing their housing expenses down to zero, Pant said.
This is what Pant calls “housing hacking,” which she highly recommends to every first-time homebuyer.
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She said that if you can fill your home “with rooms and tenants and get yourself to a point where you don’t pay a mortgage from your paycheck, that is a great way to start yourself in home ownership because you have so many other bills – it really changes your ability to save.”
It worked for Pant. She now owns her eighth home, and though she and her husband no longer live in the triplex, they still rent it out.
But she warned that there’s more to save for than the down payment – it’s the ongoing costs you need to keep in mind.
“There’s all this stuff you never imagined you would buy – a garden hose, a lawnmower – and having money for repairs and maintenance,” she said. “It takes a lot of money. Every paycheck was going to Home Depot for all the little things.”
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This article originally appeared on Business Insider.