Loan Zone: Millennial Homebuyers Are Struggling

young couple on a ladder painting walls of new house
By Tommy O’Shaughnessy

4 minutes

Here’s how credit unions can help reduce the stress of new homeownership.

Millennials have finally entered the housing market, but it hasn’t been easy for them. While the majority of homeowners are satisfied with their properties, millennials as a group report exceptionally high levels of financial stress and regret regarding their home ownership. 

Clever Real Estate’s recent millennial homeowner study examined the reasons for this generation’s home-related distress, and gleaned key insights into how credit unions could offer assistance in a way that would benefit both young people and CUs.

Millennial homeowners seem especially unhappy when compared to baby boomers. While only 13% of baby boomers reported feeling stressed by homeownership, millennials were twice as likely to report being stressed by it. Part of this stress may be due to comfort or familiarity; 68% of baby boomers have lived in their current homes for more than 10 years on average, while 61% of millennials have lived in their homes for less than five years. 

In other words, millennials are still settling in, so some of that dissatisfaction could go away over time. But right now, they have serious regrets. Our study found nearly half of millennial homeowners had buyer’s remorse, while only 20% of baby boomers did. But why?

No one disputes that millennials have been dealt a tough hand, economically speaking. They entered adulthood during a turbulent economy burdened with unprecedented levels of debt. But some of the homebuying choices they’re making, whether by necessity or otherwise, are compounding their financial difficulties. For example, 67% of millennial homebuyers put less than 20% down, which leads not only to larger monthly payments, but also requires them to pay mortgage insurance. So it’s no surprise that higher-than-expected mortgage payments are the leading cause of millennial homebuyer remorse.

And that’s just the beginning. Millennials are much more likely to buy fixer-uppers that require major renovations; 80% of millennials are planning to take on major home renovations in the next five years, and they’re also planning 49% more renovations than baby boomers. 

When they take on those renovations, millennials tend to finance them with credit cards or personal loans. Our study found that millennials were twice as likely as baby boomers to fund their home renovations with a credit card and three times more likely to fund them with a personal loan. When you consider that credit cards average around 17.5% APR and personal loans average between 10% and 30% APR, it’s easy to see how expenses could spiral out of control.

So how can credit unions help? Millennial homeowners may be putting expensive renovations on their credit cards because they don’t realize there are better options. With some simple outreach, credit unions could capture this millennial business just by educating them. Some renovations might be even covered under their homeowner’s insurance policy. If, say, their roof was damaged in a storm, they might want to file a claim instead of going straight to the credit card.

If we’re talking financing, a home improvement loan is an option, if your credit union offers them. A home equity line of credit also makes much more sense than a credit card. Homeowners who don’t yet have a lot of equity might consider low-interest options like the FHA 203(k) and Limited 203(k) loan programs, the Department of Housing and Urban Development Title I Property Improvement Loan program, or the USDA Section 504 Home Repair program for very-low-income homeowners in rural areas. There are also Community Development Block Grants issued through HUD, which millennial homeowners could qualify for, depending on the restrictions on individual grants.

Many millennial homeowner problems could be avoided with a little candor at the beginning of the loan process. Our study found that 43% of millennial homeowners were surprised by the costs of maintaining a home, which indicates an information gap. Credit unions that provide mortgages should go into specific detail with a prospective millennial homebuyer about the real costs of everything from renovations to mortgage payments. If they’re putting less than 20% down, show them exactly how much more they’ll be paying every month and in the long run. If they’re planning on major renovations, show them the difference between using an FHA 203(k) loan and a credit card or personal loan in interest. 

Think of it this way: Helping millennial homeowners achieve a level of comfort in their homes benefits everyone from communities to neighbors, to credit unions themselves. Trust is the foundation of any solid member relationship, and grateful millennial homeowners will be the most loyal customers imaginable if you help them avoid bankruptcy over that second bathroom. 

Lastly, when millennial homeowners are selling their starter homes and moving into their forever homes, make sure they know about low commission real estate agents. Most millennial homeowners don’t know that the commission fees they pay agents are negotiable, and they don’t need to fork over a huge portion of their equity.

Credit unions can become a true partner in the homebuying and selling processes for millennials if they can provide helpful advice at each stage of homeownership.cues icon

Tommy O’Shaughnessy is the head of research at Clever Real Estate, St. Louis, the free online platform that connects top-rated real estate agents with home buyers and sellers for a fraction of the traditional 6% commission. 

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