“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.
Millennials 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.