This article from Forbes highlights some of the latest trends in homeownership among the Millennial generation, and offers some suggestions on how the Baby Boom generation can help Millennials save for and purchase a home.
In March 2015, Bloomberg reported that the rising rental prices might be causing Millennials to experience a “nudge toward homeownership… First-time buyers made up 29 percent of existing-home sales in February, up from 28 percent in January and the first increase since November…” The Zillow Housing Confidence Index said that about 5.2 million renters say they expect to purchase a house in 2015, up from 4.2 million a year ago. Where job growth is strong, the Millennials who were once renting now want to buy.
Baby Boomers, it’s time to help your offspring with this decision. It’s also a good time to help financially.
Affordability – Work with your Millennials to figure out if they can afford a home now, and that they are not counting on increased salaries or bonuses to do so. They’ll need to base the decision on current income and expenses.
Credit scores – Help your offspring pull their scores and make sure that all of the information is accurate. The higher their score, the lower their monthly payments. A score of 700 to 720 should get them a good rate, and 750 and above will garner the best rates on the market.
Percentage of home expenses – If you are looking at a conventional mortgage loan for your Millennial, a good rule of thumb is that their home expenses not exceed 28 percent of their gross monthly income.
Hidden upfront costs – When you are figuring out the upfront money your Millennial needs to procure the mortgage, make sure that you include all costs, not just the 20 percent for the down payment.
Down payment – Many Millennials have not saved much for a home. This is a perfect time for you Baby Boomers to help out. You can loan or gift (IRS annual exclusion for 2015 is $14,000) your kids the money for the down payment. If it is a loan, structure it with a real promissory note (which you can get online), and you can use a current floating or fixed interest rate. You may want to give the kids a little break for a few months while they figure out their new expenses.
Buying a home can be scary; it is a big responsibility. Try to reassure your Millennial children that, even though this is a big step, many of us have taken it and enjoyed the comfort and security a house or condo has provided for our loved ones and ourselves.
