Millennials & Mortgages: Generation is Struggling With Down Payments, Sometimes Getting Help From Parents
Part one of LendEDU's two-part millennial & mortgages study examined trends amongst current millennial homeowners, and found that this generation often pays for PMI, in addition to leaving little wiggle room to meet monthly mortgage payments.
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When the 2008 Financial Crisis struck, millennials—now between the ages of 23 and 38—were either just old enough to fully grasp the severity of the situation or were well into their careers.
It is well documented that the recession was ignited by a subprime mortgage lending crisis. Operating in a wild west lending environment, financial institutions were supplying mortgages to consumers whose finances really should’ve prevented them from qualifying.
This led to obscenely high mortgage default rates that led to the eventual bursting of the subprime bubble.
With millennials having a front row seat to the mortgage-induced financial crisis, LendEDU wanted to better understand how this generation is approaching the home buying experience, specifically as it pertains to mortgages.
Millennials are now the largest living generation and make up a vital component to the economy as they are either in or are approaching their highest earning years.
This means that this often-chastised generation will be absolutely crucial in keeping the housing market healthy. And if history tells us anything, it’s that homeownership is one of the pillars of a thriving American economy.
So, LendEDU surveyed 1,000 millennials to analyze home ownership and mortgage trends for this imperative generation. Below, you will find part one of this study, which specifically pertains to millennials that already own a home.
Full Survey Results
(The following data derives from an online survey of 1,000 millennials between the ages of 23 and 38.)
(1) Do you currently own a home?
- 58% of respondents answered “Yes”
- 42% of respondents answered “No”
(2 – Asked only to those who answered “Yes” to Q1) Did you use a mortgage to finance the purchase of your home?
- 83% of respondents answered “Yes”
- 17% of respondents answered “No”
(3 – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) When shopping for a mortgage, did you obtain quotes from multiple lenders to compare and choose the best option or just one quote from one lender that you ended up going with?
- 80% of respondents answered “I obtained multiple quotes from lenders before deciding on the best option.”
- 20% of respondents answered “I only went to one lender when shopping for a mortgage.”
(4 – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) When shopping for a mortgage, did you handle the process online or through an in-person mortgage broker or lender?
- 20% of respondents answered “From applying to closing, I handled the entire process online.”
- 38% of respondents answered “From applying to closing, I handled the entire process in-person.”
- 42% of respondents answered “Some combination of both.”
(5 – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Was your mortgage lender a traditional bank like Bank of America or Wells Fargo or was it a non-banking lender like Quicken Loans or Loan Depot?
- 73% of respondents answered “I went through a traditional bank like Wells Fargo.”
- 22% of respondents answered “I went through a non-banking lender like Quicken Loans.”
- 5% of respondents answered “I’d rather not say.”
(6 – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Was the mortgage that you took out an FHA-insured loan?
- 75% of respondents answered “Yes”
- 25% of respondents answered “No”
(7 – Asked only to those who answered “Yes” to Q1, “Yes” to Q2 & “No” to Q6) Were you aware of the FHA-insured loan program before taking out your mortgage?
- 55% of respondents answered “Yes”
- 45% of respondents answered “No”
(8 – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) As a percentage of the total purchase price, what was the size of your down payment when closing on your home?
- As a percentage of the total purchase price, the average down payment was 16%.
- As a percentage of the total purchase price, the median down payment was 15%.
(9 – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Are you currently paying private mortgage insurance (PMI)?
- 52% of respondents answered “Yes”
- 42% of respondents answered “No”
- 6% of respondents answered “I’d rather not say.”
(10 – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Do you regret taking out a mortgage to finance the purchase of your home?
- 13% of respondents answered “Yes, the cost of the mortgage is really hurting my bank account.”
- 17% of respondents answered “Yes, I should have waited longer to purchase a home.”
- 5% of respondents answered “Yes, for another reason.”
- 48% of respondents answered “No, I received a good deal on my mortgage, and it was a wise investment.”
- 12% of respondents answered “No, I wanted to become a homeowner at whatever cost.”
- 3% of respondents answered “No, for another reason.”
- 2% of respondents answered “I’m not sure/I’d rather not say.”
(11 – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Did your parents or guardians assist you financially in making the down payment on your mortgage?
- 30% of respondents answered “Yes”
- 69% of respondents answered “No”
- 1% of respondents answered “I’d rather not say.”
(12 — Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) Has the cost of owning a home and taking out a mortgage forced you to delay any of the following life goals? (Select all that apply)
- 17% of respondent answers were “Marriage”
- 16% of respondent answers were “Having children”
- 7% of respondent answers were “Having a pet”
- 15% of respondent answers were “Changing jobs”
- 4% of respondent answers were “Other”
- 41% of respondent answers were “None of the above”
(13 – Asked only to those who answered “Yes” to Q1 & “Yes” to Q2) At the moment, is there anything in your life that could impact your ability to make monthly mortgage payments?
- 18% of respondents answered “Yes, I have overwhelming credit card debt or another form of debt.”
- 33% of respondents answered “Yes, my savings are limited and an emergency expense from something like an accident would drain them.”
- 10% of respondents answered “Yes, my job security and/or line of work is not stable.”
- 39% of respondents answered “No, I feel secure in meeting my monthly loan payments.”
(14 – Asked only to those who answered “Yes” to Q1 & “No” to Q2) What is the reason as to why you did not need a mortgage to finance the purchase of your home?
- 41% of respondents answered “I bought it outright.”
- 18% of respondents answered “I was denied a mortgage and became a homeowner through something like a rent-to-own agreement or a loan from my parents.”
- 33% of respondents answered “I inherited the home from a family member.”
- 8% of respondents answered “Other”
Observations & Analysis
More Than Half of Millennials Are Homeowners, Most of Them Using a Mortgage
To kickoff this study of millennial mortgage trends, we first wanted to get a better sense of how many millennials are homeowners, in addition to how many took out a mortgage to facilitate the home-buying experience.
When it comes to millennials—who are currently between the ages of 23 and 38—58% of them are homeowners according to the LendEDU survey.
According to U.S. Census data from 2015, the overall U.S. homeownership rate is 63.7%, while the homeownership rate for those between the ages of 45 and 54 was 70.1%, and 75.8% for those between 55 and 64 years of age.
With the oldest millennials currently being 38 years old, it appears that this generation is on a solid pace to reach, or even eclipse, homeownership rates set by previous generations when it eventually falls into the over 45 age grouping.
One can logically assume that millennial incomes will grow with age, which should result in an increased homeownership rate above the 70.1% that currently exists for those between the ages of 45 and 54.
Vast Majority of Millennial Homeowners Using a Mortgage Through a Traditional Bank
In the second tab of the above graphic, you can see that 83% of millennial homeowners utilized a mortgage to finance the purchase of their home.
One of the follow-up questions proposed to mortgage-using millennials provided some interesting, perhaps unexpected, results.
Despite the ongoing trend of non-banking lenders like Quicken Loans increasing their market share of mortgage originations, 73% of millennials indicated that they went through a traditional bank like Wells Fargo for their mortgages, while 22% went the route of non-banking lenders.
According to recent data reported by the Wall Street Journal, non-banks held a 51.7% share of mortgage originations, up from a low of 8.9% in 2009 at the height of the recession.
However, it is worth noting that banks, specifically Wells Fargo and JPMorgan Chase, are still the top mortgage lenders when it comes to originations. Those two did $91.5 billion and $43.7 billion in mortgage originations in the first half of 2018, respectively, while non-banks Quicken Loans ($41.5 billion) and PennyMac ($30.25 billion) were the closest competitors.
It was interesting to see that millennials are quite overwhelmingly bucking the trend of going with non-bank mortgage lenders instead of actual banks. One would think that memories of the Great Recession, fueled by sub-prime mortgage lending on the part of traditional banks, would steer millennials in the direction of non-banking institutions like Quicken Loans when shopping for mortgages, but this doesn’t appear to be the case.
And, This Generation Also Loves Utilizing the FHA Loan Program
Insured by the federal government, specifically the Federal Housing Administration, FHA loans work like standard mortgages but require lower credit scores and down payments than normal. Because of the more lenient requirements, FHA loans are great for first-time homebuyers.
>> Read More: Best Mortgages for First-Time Homebuyers
And, it looks like millennials, many likely being first-time homebuyers, are taking advantage of FHA loans.
Exactly three-quarters of millennials indicated that their mortgage was FHA insured, while 25% stated that their mortgage was not insured by the federal government.
Amongst that 25%, 45% responded that they were not aware of the FHA loan program before taking out their mortgage. Even more millennial homebuyers would have likely seized the opportunity to utilize an FHA-insured loan if only they had known about it.
On the flip side, it is good to see that millennials, many of whom are just a few years removed from college and earning starting salaries or a bit more, are seizing the opportunity that comes with FHA loans. It is a program meant for consumers that otherwise couldn’t afford to become homeowners since the low down payment on an FHA-insured mortgage makes owning a home possible.
Michelle Clardie, a millennial real estate blogger, was someone who took advantage of an FHA loan:
I’ve used FHA-insured loans for both of my mortgages. The 3.5% down-payment option available through FHA loans was the only way I could afford a down payment in the high-value Los Angeles and San Diego real estate markets.Michelle Clardie, Millennial real estate blogger.
Average Millennial Homeowner Making a 16% Down Payment, Leading to More Frequent Use of Private Mortgage Insurance
When our millennial home-owning respondents were asked to state the size of their down payment as a percentage of the total purchase price, the average answer was 16%, while the median answer was 15%.
The general rule of thumb regarding the size of down payment when closing on a home is that it should be 20% of the entire mortgage amount. Of course, this threshold can be tough to meet for young millennials that haven’t reached the peak of their earnings potential, and the results from the study illuminate this struggle.
The mortgage down payment trends from our report also explain the results from Question 9 of the survey about private mortgage insurance (PMI).
More than half of millennials with a mortgage are paying for private mortgage insurance, while another 6% opted not to say. PMI is often required by a mortgage lender if the down payment is less than 20%, which according to our data, is quite often when it comes to millennial homebuyers.
Kelan Kline, a millennial website founder, made a limited down payment and was stuck paying for PMI for a bit of time:
Our down payment was around $13,000, which was 10% of the purchase price of our house. We did have PMI for the first five years as we only put 10% down.Kelan Kline, Millennial website founder
The purpose of PMI is to protect the mortgage lender in the event the borrower defaults on their loan. PMI should be avoided as it will usually cost the homeowner between 0.5% to 1% of the full mortgage amount, which could easily run a consumer at least an extra $1,000 per year until the 20% equity benchmark is met by the homeowner.
While it is great that so many millennials are already homeowners, it is not great that so many are also paying for PMI as a result of less-than-optimal down payments.
Marissa Sanders, a millennial personal finance expert, is another one of those members of her generation that is now paying PMI as a result of her not being able to make a downpayment at all:
The reason we chose to go with a USDA loan was so that we could forgo the down payment. We didn’t have extra money lying around at the time, but we were desperate to get into our own home.
Because there was no down payment, we are paying the PMI.Marissa Sanders, Millennial personal finance expert
Perhaps, the underlying theme is that a lot of millennials are simply struggling to meet the ideal down payment on a mortgage and might be jumping into homeownership before they are truly ready; this notion is further reinforced by another data-point from the survey.
Nearly 1/3 of Millennial Homebuyers Received Assistance From Parents to Make Down Payment
As mentioned above, the data from this survey indicated that the average millennial homebuyer was struggling to meet the ideal down payment of 20%, and it turns out that quite a few members of this generation are turning to their parents to help mitigate those struggles.
30% of poll participants stated that their parents or guardians assisted them financially in making a down payment on their mortgage, while 69% did not receive any help, and 1% opted not to say.
Mr. Kline and his wife were fortunate enough to receive some help from his parents in meeting a down payment:
We were very blessed and did have help with our downpayment. My parents gave my wife Brittany and I a gift of $10,000 to put towards our downpayment and closing costs.Kelan Kline, Millennial website founder
Of course, if a parent, guardian, or other close relative, is offering to help you in paying your down payment to purchase a home, it would probably be unwise to reject that help, especially if they are not asking to be repaid.
With that being said, if you are actively seeking out assistance from a parent to contribute towards your down payment, which may be the case for quite a few millennials judging by the 16% average down payment, than you are probably not ready to become a homeowner in the first place.
If you need help making a down payment on a home, than how will you handle other expenses that come with owning a house such as homeowner’s insurance, normal repairs, and tax obligations?
More Than Half of Millennials Are Delaying Other Life Milestones to First Become Homeowners
To gauge millennial eagerness when it comes to owning a home, we asked the current homeowners if they delayed important life milestones due to the cost of owning a home and taking out a mortgage.
59% of millennial homeowners with a mortgage indicated that the cost associated with achieving those milestones prevented them from attaining other goals.
More specifically, 17% of millennials said that the cost of owning a home and taking out a mortgage has delayed marriage, 16% stated it delayed having children, 16% have had to put off having a pet, 15% haven’t been able to change jobs, and 4% answered that homeownership has prevented them from achieving something else not listed.
Millennials are clearly prioritizing homeownership over other life milestones, which makes sense in some regards and not as much sense in others. For example, it may be more savvy to first get married before taking out a mortgage and owning a home as dual incomes can lead to purchasing a nicer home and getting more favorable mortgage rates and terms.
However, it is likely more sensible to become a homeowner before owning a pet or having children as both of these things are going to be quite costly over an extended period of time, and you would want to first ensure that you are secure in meeting monthly mortgage payments before taking on additional expenses.
Steffa Mantilla, a married millennial, put off having children until she and her husband had secured their finances:
Having children was delayed. My husband was in the Navy for the first 8 years of our marriage. After he got out, we moved to Houston and lived in an apartment for 5 years. Our intention was to save up a good downpayment for a house.
We wanted to be able to live on one income if need be and have a 6 month emergency fund built up before buying a house. We delayed having kids until we were able to reach these goals.
We took out the mortgage three years ago and now have a 21-month old son. It ended up working out but we were fortunate that neither of us had bouts of unemployment or any major unexpected expenses pop up. Otherwise, we would have been delayed by a few years most likely.Steffa Mantilla, Married millennial and blog owner
61% of Millennial Homeowners With a Mortgage Indicate Limited Wiggle Room For Meeting Monthly Payments
Monthly mortgage payments can get quite costly and often carry on for multiple decades, which is why it is important to always have at least a few months of mortgage payments stowed away in a bank account in case an unexpected and unfortunate event arises.
This is something that Ms. Clardie has done well when budgeting for her mortgage:
I keep an emergency fund that covers 3 months’ worth of expenses to protect myself against unexpected expenses that could possibly cause me to miss a mortgage payment.
With that kind of cushion, I’m confident that I will have enough time to recover from any financial emergency before I have to miss a mortgage payment.Michelle Clardie, Millennial real estate blogger
For other millennials with mortgages, do they think that there could be something that arises that impedes their abilities to make payments?
While 39% of millennial homeowners felt secure in meeting their monthly mortgage loan payments, 61% felt the opposite way. Specifically, 33% cited limited savings that could evaporate due to an emergency, 18% pointed towards “overwhelming credit card debt or another form of debt,” while 10% worried about their job security.
Having so many millennials being concerned about fulfilling monthly mortgage payments is worrisome. As it has been alluded by other data points from this survey, like the average millennial down payment on a mortgage, it seems that a good proportion of this generation is taking the plunge into homeownership without really being ready to meet the demands.
Becoming a homeowner is a terrific accomplishment, but it comes at a serious price that should not be paid for if a millennial, or any consumer, isn’t 100% sure that they can handle it. It is always better to be patient and wait until the time is right to purchase home because the consequences that stem from overextending one’s financial capabilities just to become a homeowner are severe.
All of the data in this report derives from an online survey commissioned by LendEDU and conducted online by polling company Pollfish.
In total, 1,000 millennial Americans were surveyed for this particular poll. According to Pew Research Center, millennials are currently between the ages of 23 and 38. Respondents were screened using Pollfish’s age filtering feature to ensure we surveyed appropriately aged consumers.
This particular survey was conducted over a two-day span, starting on July 22, 2019 and ending on July 23, 2019. All respondents were asked to answer all questions truthfully and to the best of their ability.
See more of LendEDU’s Research