Millennials and Home Buying:
Solutions to Address the Challenges
It's no secret ...
Today's younger generation is finding it much more challenging to buy a home than their parents did. That's troubling and sad, as 9 out of 10 millennials report they want to buy a home.
A recent revealing survey released by Apartment List shows that:
- Only 4.9% of those millennials (those born 1981-1996 (22 to 37 years old) that want to buy a home say they will achieve their homeownership goal within the coming year
- Around 34% of those hoping to buy a home believe they'll have to wait over 5 years to do so
The culprits robbing these young people of their home buying dreams have been well-documented.
- Increasing home prices
- Student loan debt
- Poor economic factors
- Inability to save money for a down payment
- Additional personal factors
Modern social factors also contribute to the younger generation's home buying malaise as well. Many are deciding to wed or have children later than their parents did. (Each has historically served as a great motivator and catalyst for home buying.)
While I've written multiple times in the past on the subject of down payments, the availability of low/no down payment mortgage programs, and the option to use "gift monies" as a source for down payment and closing costs ... or utilizing a co-mortgagor/co-signor when buying a home ... a quote contained within a recent article I read on BuzzFeed.com convinced me it was time to broach these topics again.
While the BuzzFeed article showcased many hard truths being faced by current hopeful home buyers, it also revealed this fact: Avenues to buy a home can and do exist for many.
Financial assistance is possible and available in various forms. One such form is gift monies.
Homework, including required documentation and paperwork, may need to be performed in order to utilize this option. But an experienced lender will assist and advise their client throughout any challenges faced. That means that, with their assistance and guidance, most younger buyers can find solutions and buy ... or at minimum, get on the path to buying sooner than they thought possible.
That was true (and duly noted) for many of those interviewed within the BuzzFeed article. One interviewee who themselves was a recipient of parental gift funds stated that they "didn't know anyone in their twenties who has the savings for a down payment without family help.”
Now their experience may be a bit out of the norm, because as a mortgage lender, I can testify that I've personally worked with many homebuyers in their 20's that have successfully purchased on their own. Gift monies were not involved in the purchase of their home.
However, the statement is correct in reinforcing the fact that monetary gifts are a valuable tool and often-used solution.
When financially capable, many parents or family members (must be related to you by blood, marriage, legal guardianship, or adoption) are willing to offer funds that will enable their children to buy a home.
It must be noted, however, that additional rules and regulations can also come into play during these financing scenarios. They will be dependent on the mortgage program used, the applicant(s) credit scores, the property they are purchasing, or more.
As always, it's important to follow the instructions and guidance provided you by your Lender, as they will be based on your individual borrowing scenario. But in the majority of transactions involving gift monies, these are basics that typically apply:- Gift funds must truly be gifts. There can be no expectation of future repayment between the provider of the funds and the recipient. (A Gift Letter will be required by the Mortgage Lender in order to secure Mortgage Approval. Please see me for instructions.)
- Co-Signors/Co-Mortgagors alike must be prepared to have monies/accounts/down payments verified, along with their employment, credit/debt, and more, just as the actual home buyer will.
- Borrowers cannot accept "Cash" or "Gifts of Cash" from parents/relatives and then deposit it into the banking account for which the funds for Closing later get verified.
Cash has NO acceptable means of being verified or counted as acceptable funds to Close by a Mortgage Underwriter. - Checks from Non-Borrowing, Non-Buying Parties can cause problems. Please check with me prior to taking actions surrounding gift monies. I will instruct you as to the correct way to provide-and-or-accept gift funds.
Both Benefactor and Recipient should also know:
- When agreeing to borrow with a daughter/son/relative, parents/relative are taking on a legal responsibility of equal measure with the child/homebuyer when they sign on their Note and take on mortgage debt.
- Involvement in gifting of funds or co-signing on another's loan can impact the parents/relatives' ability to borrow money in the future, either by limiting the funds available or full loan denial.
- Any parent/relative considering the gifting of funds should talk to their Tax Advisors or Financial Planners first. That way they are fully educated as to the tax implications and impact of gifting these funds.
- The same goes for parents thinking of becoming a Co-Signer.
- Have conversations with Tax Advisors, Financial Planners and myself (your Mortgage Originator) prior to entering into any verbal or written obligation with your child. That way you are fully aware of your financial and legal obligations when doing so, as well as your emotional ones.
It's commendable when parents or (relatives) wish to assist a young home buyer in the purchase of a home. The extent of their generosity should never be underestimated or overlooked, as at today's beneficial low-interest rates home buying can be an extremely wise financial move. The savings can be immense.
But other options for buying and financing, such as Co-Signors/Co-Mortgagors and more exist and can also help millennials buy a home. Some demanding less money or downpayment than you thought necessary to buy.
A large or 20% down payment is not needed for these Low/No Down Payment Options that exist today:
- Federal Housing Administration (FHA) financing option is still available. It remains available to those Buyers with as little as a 3.5% Down Payment
- Conventional Loans are available with 3% Down Payment * with Fannie Mae's HomeReady Loan, among others
Loan Options exist today with little or NO Money Down. They are:
- A. VA: 100% Financing for Qualified Military Veterans
- B. USDA-RD: 100% Financing for Certain Qualified Rural properties/locations
- C. FHA: $100 Down Payment for Qualified HUD-owned properties
- D. IHDA *: Down Payment Assistance Financing. Income Limits Apply. Funding is limited. Restrictions are also in place and apply. (* Illinois Housing Development Authority. Can be used for the purchase of IL properties only)
And of special note here: While FHA and Conventional Loan Programs require 3.5% Down (FHA) and 3 - 5% Down (Conventional), these Down Payment Funds can be GIFTED by relatives (within certain guidelines as to the Donor's relationship to the Borrower(s).
The bottom line is that if you want to buy a home, don't give up. Options and opportunities specific to your financial scenario might exist that would make it possible for you to realize your home buying dream. But you're not going to know for sure until you talk to a lender.
So if you dream of becoming a homeowner, take action and get on the path to home buying success! Contact me ... or your own mortgage lender when you seek to buy a home or assist in the buying of a home or investment property with or for others.
* Hoping to buy or refinance a home or investment property in New Lenox - Will County or elsewhere in the Chicagoland - IL - WI area?
Contact me today. I'll put my 40+ years of mortgage experience hard to work on your behalf.
I'm easily found at:
Gene Mundt
Mortgage Lender - NMLS #216987 - IL Lic. #0006220 - WI Licensed
American Portfolio Mortgage Corp.
NMLS #175656
Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281
Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago
and the greater Chicagoland region, including:
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL. etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL & WI.
Your Referrals are Welcomed & Greatly Appreciated!
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