You’ve likely seen and read much over recent years about the financial clout carried by the so-called “Millennial” home buyer. And rightfully so as millennials, those born roughly between the years of 1981 and 1997 have surpassed the once dominant Baby Boomer class. Baby Boomers, those born between the years of 1954 and 1964, drove the financial markets for decades yet as they age they’re leaving the earning years and moving into retirement. But it’s been noted that Millennials have been notoriously shy about making any large purchases and a home certainly falls into the category of a large purchase. There are various theories that attempt to explain their conservative behavior but it could very well be that during the financial crisis that started around 2008, when they were 10 to 20 years old, they witnessed first hand the consistent drum beat of foreclosures, bank failures and other financial foibles and wanted no part of it.
Yet while that certainly had an impact of some degree, instead of treating Millennials in the same way as others as it relates to home buying, maybe it’s understanding how the Millennial thinks about investing in a first home. Today however, Millennials seem to have shaken the home buying hesitation and are entering the real estate market in droves. Perhaps knowing the motivations and thought processes a Millennial uses to evaluate any financial opportunity can help mortgage lenders more easily cater to them and help get them into their very first home.
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Here are 10 things you need to know to close the deal.
- The Early Struggle is Over
After years and years of Millennials hearing how important it is to get a college degree, they naturally followed that advice. Yet the cost of a college education has skyrocketed and many Millennials are burdened with student loan debt. College students first get a taste of credit when they receive their first credit card offer and are managing small credit accounts with limits ranging from $500 to $2,000 with monthly payments easy to handle.
Paying for college with help from student loans can be a big surprise. Student loans are deferred until anywhere from six months to a year or more after graduation. When the bills first arrive, they can be a little shell shocked at how much they owe. The average graduate today sees about $30,000 owed in student loans. It’s easy to see how the average Millennial can be a bit gun-shy when thinking about a new mortgage.
However, Millennials still have to live somewhere. And since they can be more cautious as it relates to debt, when comparing rent with a house payment, they can see the benefits of owning by building equity over time instead of throwing away rent every month as an expense.
Understand the millennial home buyer might be a bit reluctant to take out new debt financing a home due to their current debt load. Run a rent vs. buy scenario showing them how a mortgage payment can be less expensive than rent, especially so in higher rent areas.
- Mortgages Are Complex
When you’re in the mortgage business getting a home loan seems to be a relatively easy process. Apply for a loan, provide some paperwork such as pay check stubs and bank statements and get a pre-approval. Then go shop. It’s that simple. Yet for those not in the industry, it can get a bit confusing. When a mortgage application is being evaluated and in the process of an approval, there are multiple third parties involved that are foreign to the Millennial buyer. It’s not a car loan or a credit card. There are settlement agents, attorneys, title insurance and more. When Millennials look at getting a mortgage they’ll first do their own research online and will soon discover it’s more than just an installment loan for a new washer and dryer. The process can be intimidating. And Millennials love to process. Break down the approval process in everyday language and avoid industry jargon.
Stay away from mortgage-speak and take it one step at a time. Millennials will want to process each individual requirement and won’t want to enter into a loan agreement without feeling confident about the process.
- Millennials Are Transient
For those just starting out on their own finding a place to live typically means finding a place to live that’s an easy commute to work. But those living on their own for the first time put work ahead of where they live. After all, they don’t find an apartment and then look for a job later, right? When getting their first job, their focus is on getting their paycheck every other week and less so on buying a home. Signing a lease for an apartment means a commitment of say six to 12 months while buying a home is a major commitment. Understand that buying a home to a Millennial means not having the flexibility of an apartment lease. Once the Millennial feels secure about their job, home buying makes more sense.
Millennials fresh out of school or just entering the workforce won’t be very likely to buy their first place to live but will more than likely rent. Consider marketing to apartment complexes where millennials are likely to live.
- The Right Age
Millennials today are in their prime. They don’t have a lot of debt piled up and have used credit responsibly. They don’t t have anything to do with the Great Recession and pay more attention to their spending habits. Fresh out of college or new in the workforce doesn’t provide enough time to save up enough funds for a down payment and closing costs but after a few years on the job with a regular savings pattern, funds do become available. Someone that has been on the job for 5 or 10 years probably has money available for a down payment and associated fees.
You’ll want to be patient with the Millennial buyer. The average age for first time home buyer is higher than it was 10 years ago.
- Stable Financial Markets
Another reason Millennials are moving the real estate market is the apparent stabilization of financial and credit markets. Gone are headlines shouting about falling credit markets, foreclosures and short sales. Instead, a sense of financial stability has taken over and it’s easier to feel confident about the future.
Millennials feel more confident buying a home and taking out a mortgage when they feel confident about their own future.
Focus on the stability of market forces and how toxic loans are essentially a thing of the past.
- Strong Stocks
Speaking of financial markets, it’s no secret the Dow has been posting regular gains and over the past year, the stock market has gained more than 6,000 points since Trump’s election. You can consider it a causality or a coincidence but investors are more confident than they’ve been in years. Millennials with 401(k) accounts and IRAs are seeing their investments grow over time. For those with funds invested in a retirement account, they may not be aware that those same funds may be withdrawn penalty-free in order to buy a first home.
As assets grow there are more funds available in retirement and savings accounts. Show how they can use their 401(k)s and IRAs to help finance their first purchase.
- Rising Rates
If there has been one thing that gets published at the top of the fold it’s what the Federal Reserve did, or didn’t do. Millennials love social media and when the Fed raises rates they see that same headline multiple times throughout the day and the days to follow. While Millennials may not know the impact or lack thereof regarding the Federal Funds rate and a 30 year mortgage, what they do see is higher rates. For those Millennials who are somewhat on the fence about buying now or waiting, the prospect of higher mortgage payments can be a motivator.
When Millennials are shown the difference between a 0.25% or 0.50% rate increase, it’s more than just the monthly payment. After all, on a $200,000 mortgage, an increase of 0.25% on a 30 year loan is $57 and while that’s nothing to ignore the real impact is how it affects their buying power. When rates rise, the have to borrow less.
As mortgage rates rise the demand for rental housing can also rise. This means higher rental rates are in store.
- Don’t Be the Last One
As Millennials age they’ll soon begin to hear stories from coworkers and friends about buying their first home. This is one of the reasons Millennials start thinking of buying. If a coworker can buy a home maybe it’s time for me to buy, right? If someone else can do it, then I certainly can. Those fresh out of school and on a new job have other priorities on their mind and buying a home isn’t one of them. Yet. But when someone they know has taken the plunge, suddenly the thought of buying does begin to percolate.
Keep “top of mind” when marketing to the millennial group. Stay in front of them and be there when they’re ready to take the plunge.
- Family Time
Millennials are waiting longer to get married and start a family. Instead, the typically share living quarters with friends or rent out a one-bedroom apartment. There is no consideration for a family life. But as Millennials get older and more stable then marriage is soon to follow. And from that can come children. As families begin, it’s time to find a place of their own and move out of an apartment and into a home.
See #4. Marketing in areas with a high concentration of renters will pay dividends when it’s time for millennials to move to the next stage of their lives.
- Knowledge Quest
Finally, Millennials want to know everything. If they have a question they do a quick online search and see multiple articles answer their query. This means Millennials are armed with information before they make a buying decision and you need to cater to this mentality. When you first speak to a Millennial about financing a home, it’s more than just a monthly payment. It’s building equity over time, income tax implications and pride of ownership. Be the lender that provides more data, not less. Build a connection by being the “go to” resource.Prepare your own Home Buying Guide replete with an explanation about home loans and home buying. Consider partnering with a real estate agent for joint marketing opportunities. Your home buying guide can be distributed via email or as a download from your website.
Want to know how BNTouch can help you reach more Millennials?