We're currently in an extreme sellers' market. When homes are listed, particularly starter homes, they often go quickly, many times with multiple offers.
As if this situation hasn't made home buying difficult enough, another obstacle many millennials face is not qualifying for a mortgage from not having a high-enough credit score or lacking long-term credit history. One option may be for millennials to invest with their parents, living with them or renting the home from them.
Obstacles millennials and younger buyers face
Fewer of the millennials ages 25 to 34 own homes than Generation X and baby boomers did when they were that age. The homeownership of millennials is eight percentage points lower than the other two cohorts. Here are some reasons:
- Student-loan debt, which doubled from 1998 to 2016, makes it difficult for these millennials to qualify for a mortgage.
- Millennials tend to rent longer than their predecessors in expensive cities, particularly before COVID-19, and that prevents them from saving for a down payment.
- Millennials tend to marry later, and marriage is one of the biggest reasons first-time homebuyers want a home.
- With COVID-19, people are leaving cities, creating demand in the suburbs when supply is already at historically low levels.
Something has to give for millennials to become homeowners.
Families investing in property together
In the past, it was common for multiple generations to live together. But in recent decades, with the standard of living being higher, people have tended to want their own home. The National Association of Realtors (NAR) reports generational living is on the rise, though, as about 20% (on average) of the U.S. population is currently living in a multigenerational home. The breakdown is 25% of Asians, 23% of Blacks, 22% of Hispanics, and 13% of whites are living generationally.
What's changing is the types of homes being built. Because of this multigenerational trend, some builders are designing homes to accommodate this way of living, mainly by creating zones where people can have privacy. Homes are being built with two master suites and separate outside accesses, for example.
How families can apply for a mortgage together
To have a better chance at getting a mortgage and a home, millennials might want to consider a mortgage product called a joint mortgage. A joint mortgage has non-married couples applying for a mortgage, such as millennials applying with their parents, siblings, or friends. A joint mortgage makes it possible for people who don't qualify for a mortgage on their own to get one. The qualifying process for a joint home loan is similar to applying for an individual loan. The difference is that in a joint loan, all applicants' incomes, assets, credit histories, and debts are considered.
It's advisable for people considering a joint mortgage to have a lawyer involved. There can be different percentages of ownership requested, and there are different types of ownership, such as "joint tenants with right of survivorship" (JTWROS), where all co-owners hold title, and "tenants in common" (TIC), where each co-owner can pass ownership to someone through a will. An attorney can help advise you on the best plan that suits your needs.
The Millionacres bottom line
One worry about the current housing market is not enough young people are buying. By applying for a mortgage with their parents, younger generations boost their credit score while living in what will one day be their home.