As a millennial, I consider myself fortunate to be a homeowner. Between high education costs, low real wage growth, and mortgage rates skyrocketing over the last few years due to inflation, it’s definitely not as easy for our generation to purchase a home as it was in generations past.
One of the biggest challenges our generation faces on the road to homeownership is saving for a down payment. Approximately two-thirds of millennials have yet to set aside any money for their first home, according to The Motley Fool Ascent’s recent survey on millennial home buying. But that doesn’t mean they’re locked into renting forever.
Millennial homeownership is increasing slowly but surely
Approximately 52% of millennials are currently homeowners, though they reached this milestone later than previous generations did. Just 42% owned a home by age 30 compared to 48% of Gen X and 51% of baby boomers.
Many more millennials would like to join their ranks, but they simply cannot afford to. Roughly 3 in 4 millennials who said they didn’t currently own a home indicated that it was simply too expensive for them.
Obviously, the typical person doesn’t buy a home outright, so it’s really about the down payment and whether they could afford the monthly mortgage payment and associated costs, like homeowners insurance. Though many are trying, most have not been able to set aside any money for a down payment yet. Of those who have some savings, 15% have less than $10,000 set aside right now.
If you’re among them right now, it’s understandable to feel discouraged. But homeownership may still be a possibility for you.
Planning for future homeownership
The first step is to figure out approximately how much you need to save, and that involves figuring out where you want to live and how much homes in that area cost. You can get an idea by looking at homes for sale online, but keep in mind that prices go up over time, so you may need to plan for higher future costs. You could try consulting with a real estate agent in your area to learn about how quickly home costs are rising and how much you may want to save as a down payment.
Conventional wisdom says you should put 20% down on a new home, but this isn’t actually required. Most millennials only put down around 13%. For their median home price of $315,000, that’s just under $41,000.
You’ll also have to budget for your mortgage payment, property taxes, and homeowners insurance. However, homeownership will free you from having to rent property, so you’ll be able to divert your rent payments to these expenses. If you still worry you may not be able to afford the ongoing costs of homeownership, you may want to consider looking for a home that costs a little less.
Next, you have to work out a plan to save for your down payment. Obviously, this will require you to find extra cash to set aside. You may have to cut back spending in other areas or try to increase your income, perhaps by starting a side hustle, to do this. But you can also leverage tools like high-yield savings accounts or certificates of deposit (CDs) to help you earn a modest rate of interest on your down payment funds.
Saving a down payment will probably take some time, but it’s definitely worth it if homeownership is a dream of yours. Track your progress over time and keep an eye out for additional savings opportunities, like year-end bonuses or tax refunds, that can help you reach your goal even faster.
