1 in 5 Millennials Believe They Will Never Own a Home — Let’s Change That

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Are you worried that rising mortgage rates and down payments will prevent you from becoming a homeowner? Find out why they shouldn’t. 

Nearly one out of every five millennials — 18% — believe they will never own a home, according to a Redfin survey, with a lack of affordability and lack of ability to save for a down payment as the most common reasons given. This is especially disturbing since the millennial generation is reaching its peak household-forming years.

Despite a common perception that homeownership is out of reach, a down payment and higher mortgage rates shouldn’t necessarily stand in your way. Here’s why.

The down payment could be more manageable than you think

It’s a common misconception that you need 20% down to buy a home. To be sure, it certainly makes it easier and more affordable on an ongoing basis with a higher down payment. By putting 20% down, you’re not only reducing the amount of money you need to borrow, but you’ll avoid paying for mortgage insurance, which is typically required with lower down payments.

However, there are several excellent options when it comes to mortgages with a low down payment.

Conventional mortgages (also known as conforming mortgages) can be made with down payments as low as 3%, which would be $15,000 on a $500,000 home, and the rules say that this can come from a gift from a relative.FHA mortgages have relatively low credit score requirements and can be obtained with as little as 3.5% down ($17,500 on a $500,000 home).VA mortgages provide 0% down payment financing without mortgage insurance to qualified veterans and current military personnel. Note that there is a funding fee that most VA loan buyers have to pay.USDA mortgages allow people to buy homes in rural areas with 0% down, although they do have a mortgage insurance requirement.

In addition, several top mortgage lenders have their own proprietary lending programs designed to help people become homeowners. For example, a few banks offer 0% down payment financing with no mortgage insurance requirement to first-time borrowers with excellent credit.

It’s also worth noting that in many cases (such as with FHA loans), you can roll some or all of your closing costs into the loan, which can help keep your out-of-pocket expenses low.

Plenty of assistance programs

In addition to the numerous low-down-payment options available, there are also plenty of programs that are designed to provide down payment assistance. Many of these are offered by state and local governments, so that’s a smart place to start your search. For example, my state (South Carolina) offers “Forgivable Down Payment Assistance,” which is essentially a second mortgage loan that is interest-free, requires no monthly payments, and is forgiven completely if you live in the home for its entire 15-year term.

Many mortgage lenders offer valuable resources when it comes to down payment assistance programs, such as a database of current offers. It can also be a smart idea to ask your lender to help point you in the right direction.

Why you shouldn’t let high mortgage rates keep you on the sidelines

While buying a home with little or no money down can certainly help you become a homeowner, it’s also important to address the fact that mortgage rates have risen from about 3% for a 30-year fixed mortgage at the start of 2022 to an APR of nearly 8% for the same loan today.

To put this in perspective, the principal and interest payment on a typical $500,000 home loan has increased from $2,108 to $3,669. And even if would-be home buyers don’t have down payment issues, this is undoubtedly keeping many of them on the sidelines.

However, assuming you can afford the monthly mortgage payments, you shouldn’t necessarily let higher mortgage rates prevent you from buying a home. For one thing, it isn’t as if rent has stayed cheap while mortgage rates have risen — your housing costs are likely significantly higher than they were a couple years ago regardless of whether you own or rent.

More importantly, keep in mind that a 30-year mortgage isn’t necessarily going to cost you the same amount of money every month for three decades. If rates fall, mortgages are fairly easy to refinance so homeowners can take advantage of lower rates if they arrive. And history tells us that rates will be significantly lower than they are today at some point during a 30-year mortgage term. As Warren Buffett said, mortgage rates are a “one-way renegotiation” that clearly favors the home buyer.

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