Millennials value homeownership above nearly everything else, according to a recent Bank of America report.
In the survey, Millennials prioritized homeownership (72%) above getting married (50%) and having children (44%). The only thing that this generation placed higher on their priority list was being able to retire (80%).
This age group—ages 23-40 in the report—associate homeownership with personal (53%) and financial (45%) success. And three-quarters plan to buy a home in the next two to five years. For those who don’t own a home yet, they cite the following reasons why:
- Not enough money saved for a down payment (44%)
- I don’t know where I’ll be in a few years (33%)
- I can’t afford the home I want (23%)
- I can’t afford the location I want (20%)
- I don’t have good enough credit (16%)
- I have student loan debt (10%)
Given their goals and challenges, here’s some advice from experts on what Millennials should consider before buying:
Make sure you really want to buy a home
“We’ve been culturally conditioned to believe [buying a home] is a marker of success and there’s something ‘less’ about renting,” says Eric Roberge, a financial planner in Boston. “Young people need to decide if owning a home is even relevant for them. Does it even fit with the life they want?”
Homeownership often comes with increased expenses, time devoted to maintenance and upkeep, and a financial commitment that’s tough to trade in if you need to move for a job or other circumstances. “Too often, the Millennials I talk to come to me saying they want to buy a home, until I ask, ‘Why do you want to buy?’ Roberge says. “And when we drill down into it, their reasons are actually based on what someone else told them to do.”
Put retirement savings on autopilot
Retirement can feel like a lifetime away, but skimping on savings now can really bite you when you’re 65—and it’s easy to do when you’re trying to save for an immediate big purchase. Sign up for your company’s 401(k) plan and contribute enough to get at least the company match. “Because retirement plan contributions are taken from your paycheck before you receive it, you can now start from a ‘take-home’ budget that doesn’t even require you to consider retirement,” says Marc C. Shaffer, a financial planner in Overland Park, KS.
As excited as you may be by the house you’re considering, don’t commit more of your income to it than you can reasonably manage. “We do not recommend putting more than 28% of monthly income towards home expenses,” says Autumn Campbell, a financial planner in Tulsa, OK. That includes your mortgage payment, homeowner’s insurance and taxes.
Financial planner Ryan J. Marshall recommends 32% of gross monthly income for this. “In certain situations, renting makes more financial sense than purchasing,” says Marshall, who is in Wyckoff, NJ. “I would rather see someone rent for a year or two than really stretch themselves and potentially losing their house.”
Think about how long you’re staying
“If you don’t plan on being in the same place for at least seven years, then renting is almost always a better financial move than buying,” says Eric Dostal, a financial planner in New York City. “The ancillary costs of buying/selling almost always overtake the appreciation in the property unless you are planning on staying put for a significant amount of time.”
Weigh your need for a starter home
“For clients looking to buy a starter home, we circle back to their goals,” Campbell says. “How long do they plan to stay in the home? What are the goals of being in this starter home? To upgrade it, save on costs, accumulate multiple properties, or something else?” These goals and timelines have an impact on the implications of getting a starter home and whether it’s right for someone.
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