As a real estate lender, you’ve likely struggled to attract millennial first-time buyers. Certain misconceptions might be standing in millennials’ way as they consider whether to buy a home. If you can educate your potential clients about these misconceptions, you may be able to grow your business and help these millennials make better financial decisions.
According to a survey from the Federal Home Loan Mortgage Corporation, the majority of millennials’ believe that renting is cheaper than homeownership. In fact, more millennial renters now believe this than in the past, to the tune of 82%.
Several misconceptions and real financial pressures have convinced many millennials that homeownership is not within their financial grasp. Primarily, millennials believe that their mortgage payments would be higher than their current rental payments. More female renters believe this than males; that may help you target this demographic more specifically.
No matter the gender, some simple education on this topic can help open renters’ minds to the possibility that they could afford mortgage payments. We suggest that lenders show their prospective clients some real-world examples of what a home in their area costs to rent versus what a mortgage payment on the same house could be. Prospective buyers rely on you to help them understand how to transition from renting to owning.
Of course, many millennials’ concerns about their down payment and closing costs are founded. The vast majority of both low-income renters and middle-income renters express significant concern about down payments. In fact, 39% of middle-income renters and 72% of low-income renters actually called down payments and closing costs a “major obstacle” preventing them from taking out a home loan.
How do you help clients make down payments? Part of the picture might be exploring how their finances would look after they’ve sacrificed to collect a down payment. Homeowners are more secure in their housing on average. Only a quarter of homeowners spend more than a third of their income on their housing costs, while 34% of renters spend more.
However, it is important to stress that renters’ concerns are real. The combined pressure of their student loans and childcare costs may be driving renters away from mortgages.
“While we tend to focus primarily on wages not keeping up with house prices and misperceptions of down payments, we should also recognize that for many millennials and Gen Xers, the basic cost of living has gone up,” says David Brickman, the president and incoming CEO of Freddie Mac.
Relating to renters, advising them to take on smaller mortgages, and offering resources to help them resolve their financial concerns may be the best way forward.
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