New Trends in Homebuying: Millennials and Nepo-Homebuyers
According to the National Association of Realtors, as of this year, millennials, those aged 28 to 43, make up about 38% of the homebuying market. But with housing affordability being an issue both here in Florida and across the country, how are they making these purchases?
Getting Help from Family
New studies are showing some new trends that might explain it. “I kind of fought through the Hunger Games in 2022 to find a home here,” shares Bruno Santos. Santos is 28 years old and has lived in Doral his whole life. For years, he had been saving for a lifetime goal of his, purchasing a home of his own in Brickell.
Down Payment Assistance
Santos decided to get some extra help from his parents, asking them, “Hey, can you help me with something? Can you help me with the down payment or the closing cost?” It’s a question that’s being asked by more than a third of millennials across the United States who are considered to be ‘nepo-homebuyers’, part of a group of homebuyers who rely on family financial support for a down payment or costs related to a first home.
Research Findings
According to research from Redfin, 36% of millennials and Gen-Z’rs are expecting cash funds from family members to help with costs on their first home. Jack Caporal, a research analyst with Motley Fool who has done similar studies, says that total is double what it was in 2019.
Home Affordability
The most recent survey data shows that about two thirds of millennials report having nothing saved for a down payment. And just about 20 percent have more than ten thousand dollars saved for down payment. “Typical wisdom is you want 20 percent for a down payment. In reality, most young folks have somewhere between eight percent and 11 percent saved up for a down payment when they buy their home. Those numbers make it clear that any additional support will make your offer on a home and your ability to pay for a home or the long term must a much more attractive offering,” Caporal said.
RENT-TO-OWN
But for those first-time homebuyers who aren’t ready to put that much money down there is another option. It’s called rent-to-own.
How it Works
Rent-to-own is an arrangement that allows a tenant to rent a home with either the option or obligation to buy it at the end of the rental period. And part of the rent that’s paid would contribute towards a down payment.
Pros and Cons
According to Motley Fool’s Research, millennials are the generation with the most interest in looking at rent-to-own as an option. 50% of all participants in the study said they would consider it because they could “purchase a home without strong credit, saving for a down payment, or qualifying for a mortgage.” But there are pros and cons to this option. If you are the seller of the property, you want to be confident that the price of the home you are renting will stay the same or lower over the next few years. If you are a renter, you will be paying a higher rental payment with some of the funds going towards your future down payment, and you’ll also be building your credit. But you need to make sure you can pay that higher rent and be able to secure your mortgage at the end of the rental period, because you don’t get your down payment contribution back.
Conclusion
For those millennials like Santos who are now part of a larger growing pattern, they’re just making themselves at home. But how expensive is it? And what are the ways in which making that kind of investment can become affordable for those in younger generations?
FAQs
Q: What percentage of millennials are relying on family financial support for a down payment or costs related to a first home?
A: More than a third of millennials across the United States are considered to be ‘nepo-homebuyers’, part of a group of homebuyers who rely on family financial support for a down payment or costs related to a first home.
Q: What is the average amount saved for a down payment by millennials?
A: The most recent survey data shows that about two thirds of millennials report having nothing saved for a down payment. And just about 20 percent have more than ten thousand dollars saved for down payment.
Q: What is rent-to-own and how does it work?
A: Rent-to-own is an arrangement that allows a tenant to rent a home with either the option or obligation to buy it at the end of the rental period. And part of the rent that’s paid would contribute towards a down payment.
Q: Are there pros and cons to rent-to-own?
A: Yes, there are pros and cons to rent-to-own. If you are the seller of the property, you want to be confident that the price of the home you are renting will stay the same or lower over the next few years. If you are a renter, you will be paying a higher rental payment with some of the funds going towards your future down payment, and you’ll also be building your credit. But you need to make sure you can pay that higher rent and be able to secure your mortgage at the end of the rental period, because you don’t get your down payment contribution back.
