Millennial Homebuying Pt 3 of 4

    “Many millennials believe they are unable to afford homes, when really many of them are unaware of the different financing options that exist — particularly those that allow for a down payment of 6% or less,” Ling says.

    However, even a low down payment may still be difficult for some buyers. Fannie Mae and the Federal Reserve report that most millennials haven’t saved enough for the estimated $13,820 needed for 6% down on the median starter home in 2015. According to our calculations, it would take the typical millennial six years to save for a 6% down payment on the median starter home.

    mortgage-calculatorMillennials living in most places in the U.S. can afford the monthly mortgage payments of the median starter home. Given the estimated monthly income of $2,940 for Americans ages 25-34 from the Bureau of Labor Statistics, and median estimated monthly principal and interest payments of $945 by Black Knight Financial Services, millennials, on average, would reach a monthly debt-to-income ratio of 32%. This ratio is within the range of 28% to 36% that most lenders look for when considering mortgage applications.

    Taking into account property tax and homeowners insurance from NerdWallet’s mortgage calculator, they found a debt-to-income ratio for millennials of 37%, which is just above the high end of the range that guides lenders.

    Now is also a good time to borrow. Interest rates trended down from 2008 and 2013, and have remained roughly flat at historic lows since then. As a result, median mortgage payments in December 2015 were still $380 less on average than before the housing market collapse.

    Their examination of the data showed that millennials aren’t facing insurmountable debt. According to a survey by Fannie Mae, 53% of young renters had debts less than $10,000, and 10% had debts over $50,000.

    The Fed’s most recent Survey of Consumer Finances found that 42% of millennial households have student debt and 35% have vehicle debt, with median debts of $17,200 and $11,000, respectively.

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