The millennial generation will be one of the greatest segments of those buying homes in the coming years. In fact, they made up 37% of home buyers in 2019, according to the National Association of Realtors’ Home Buyers and Sellers Generational Trends Report. Most of them — more than three-fourths — will be buying a home for the first time.
If you’re a real estate agent specializing in residential homes, knowing a little about this millennial generation, their goals for the near future, and what they’re looking for in a home can help you tailor your services to their needs and hopefully attract more clients.
Millenials likely haven’t purchased a home before, so they’re really looking for a buyer’s agent they can trust. You can gain this trust by understanding their motivation behind buying a home. Here are just a few insights into the characteristics of millennials today from Clever’s 2020 Millennial Home Buyer Report.
The millennial generation became adults during the Great Recession. Pair that with high amounts of student loan debt, stagnant wages, and waiting longer to establish their career and families and you have an entire segment of home buyers incredibly concerned about affordability when purchasing a home.
Millenials are in search of cheaper homes priced around $210,000. This means they’re trending toward cities outside of major metro areas, where homes are generally cheaper than city center. They may be more willing to live in no-frills homes in less desirable areas if it means the home will be affordable to them and their strapped budgets. More on this in the section below.
Low down payment options
Fifty percent of millenials cite a down payment as a major barrier to their home ownership goals, according to Clever’s survey. 70% plan to put less than 20% down and 86% will use funds other than savings — like money from parents — to buy a home. While they pay be able to secure a loan with their decent credit, most millennials have a hard time finding the needed cash to afford a traditional down payment required by their lender.
Agents selling to millennials should point them in the direction of Federal Housing Administration (FHA) loans that require less in a down payment, as low as 3.5%. Just make sure they know their monthly mortgage payment is likely to be higher since they’ll need to purchase mortgage premium insurance (MPI) for the life of the loan.
Willing to compromise
Millennials are willing to go to great lengths to buy a home, and that means compromising. This includes delaying a wedding or kids, moving in a roommate to a spare bedroom, paying a high interest rate, or leasing a rent-to-own property.
As an agent, you’ll need to think a bit outside the box to reach millennial clients. They may be particularly interested in fixer uppers, foreclosures, or homes with extra living spaces that they can rent out to friends to help with the mortgage payment. Plus, they’re more willing than other generations to live near unattractive locations, like near highways or waste management facilities.
Looking to settle down
Surprisingly (or not if you are one!), over a third of millenials are looking to purchase a home so they can start a family and see doing so as the first step to settling down. While often assumed to want tiny homes or to live in a van, millenials want homes in good school districts and safe neighborhoods since little ones are on their mind for the near future. They may also gravitate toward living near family and friends, as the fear of another recession and financial instability is still very real to them.
Newer homes don’t quite line up with the finances, so show millennials homes in older — but nice — neighborhoods with plenty of young families. Many plan to move in as a newly married couple, but fill their home with a couple kids in the near future.
At the top of most millenials’ list of must haves for their new home is a garage, a large kitchen, space to grow into with a family, and a dedicated laundry room. Most of these necessities are closely tied to their desire to start a family. While millenials don’t tend to be as picky as boomers on specifics — they simply want a safe home in which to be comfortable with their new family. If you have any no frills, affordable homes that fit the bill, consider pitching these to your millennial clients and they’re likely to jump on them.
Millenials have few deal breakers when it comes to buying a home, and they’re generally ones that come with the risk of needing more cash to fix later — something millennial buyers always have on their mind. Their short list of deal breakers include homes with mold, pest or insect infections, foundation issues, or leaky roofs.
These are homes you should steer your clients away from in general, or at least let them know the risks associated with purchasing a distressed asset.
Author bio: Luke Babich is the CSO of Clever Real Estate, the online referral service that connects home buyers and sellers with top-rated agents. Luke is a real estate investor in St. Louis, MO with over 24 units who specializes in multifamily units. His first investment was a house hack with Clever’s cofounder, Ben Mizes.