5 Things Millennials Can Do to Buy a House Within the Next Decade

By Mikey Rox on 26 May 2015 2 comments

Millennials — children born between 1980 and the early 2000s — are tech savvy and educated, but they also face more financial stress than previous generations. Between high unemployment rates and costly student loan debt, it's harder for Millennials to achieve financial independence. As a result, many Millennials don't have immediate plans of buying real estate.

If you're a Millennial, it might take longer to purchase your first property, but rest assured that homeownership isn't completely out of reach. With careful planning, there's plenty you can do to buy a house within the next decade.

1. Live With Your Parents a Few More Years

There's no shame in moving back home with your parents after college. For most Millennials, down payments and closing costs are the biggest hurdles to homeownership. Even with a full-time job, many Millennials simply don't have disposable income to save 5% to 20% for a down payment or come up with cash for other mortgage-related expenses.

If you and your parents are okay with the idea, move back home and live with your folks while working full-time. Your parents will likely charge less rent than a landlord (or maybe you have a pair of those fiction TV parents who let their kids live at home rent-free — lucky duck!), giving you the opportunity to bank a lot of your income.

2. Get a Second Income Stream

If you can't move back home, secure another income stream and put this extra money toward your house fund. This approach gets you closer to your goal, especially if the money you earn from a full-time job only covers basic expenses and there's nothing left for building a down-payment fund.

"I was tired of rent increases and desperately wanted to buy, but didn't think it was possible, especially since all my income went to rent and other living expenses," says Erica, a 31-year-old English teacher from Chesapeake, Virginia. "I sacrificed my free time and started tutoring and freelance writing on the side. I saved every cent, and in two years I saved a little over $7,000 for a down payment on a condo."

3. Adjust Your Spending Lifestyle

You're young and energetic, and naturally you want to have a good time. But if you're serious about buying a home within the next decade, you need to work in harmony with this goal and adjust your spending.

Cash for a down payment and closing costs isn't going to fall out of the sky and miraculously appear in your bank account, so you need to make smarter decisions. It's okay to have a good time, but being young isn't an excuse to blow your money chasing fun or getting the latest electronic gadgets. The money you spend enjoying the "good life" can be put to better use, such as paying down debt or building your house fund faster.

4. Get Out of Debt

Between 2012 and 2013, approximately 60% of students graduating with a bachelor's degree borrowed an average of $27,300, and according to a 2014 Wells Fargo Millennial Study, "About half of Millennials (47%) are using more than half of their monthly incomes to pay off various types of debt."

Even if you have a job and cash to buy a house, lenders factor in your debt-to-income ratio. And unfortunately, if your monthly debt payments exceed 43% of your gross income, you might not qualify for a mortgage.

Right now, paying off debt should be your biggest focus — and yes, student debt counts. You can also make headway if you take the above advice and live with your parents, or at least split living costs with a roommate.

Making higher payments and living within your means also helps you overcome credit card debt. Too often, young adults are so concerned with having a certain type of lifestyle and keeping up with their friends that they live off credit cards and acquire massive debt at a young age.

5. Fix Credit Issues

According to Credit Karma, the average Millennial has a credit score around 630. There are mortgage programs specifically for borrowers who have a low credit score, but these mortgages come with higher mortgage rates, which means paying more interest over the life of the loan and a higher monthly payment. Improving your credit score will not only help you qualify for a mortgage within the next decade, it can result in a more affordable monthly payment.

Paying down is one way to give your credit score a boost, but you'll also need to pay your bills on time, which accounts for 35% of your credit score. Applicants with credit scores in the mid-700s to 800s qualify for the most favorable rates.

Are you a Millennial? Would you like to buy a house someday? Let me know what proactive steps you're taking toward that goal in the comments below.

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Guest's picture
Guest

Can't believe none if these points were "buy a multi-family home."

Guest's picture
dj

I'm 25 and fiancé is 23. I'm in the 750s/740s fico confirmed with mortgage inquiry and fiancé is 730s. We both drive affordable toyota sedans with 400 and 320 payments respectively. I have no student loans, fiancé pays almost 180/mo but is still in school. Our new home is currently being built and scheduled to finish August or September. No parent help no gifts, we're on our own. Did I mention we have a 15mo old in child care? We have a strict 800/mo savings plan. We pay bills, buy food, little to no entertainment. We act like that 800 isn't ours. The key to home purchasing is credit score, and save save save which includes sacrifices of luxury items.

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Guest

I am 27 and live with my boyfriend of 4 years. We currently rent at a little over 30% of our combined monthly income. I finished paying off my student loan debt about 2 years ago, but both my boyfriend and I have about 6k each in additional debt. By the way this is in San Diego, CA; in the top 10 most expensive cities to live in the nation. After doing lots of calculations, which included paying off debt, paying expenses, and contributing to my retirement account, I came to the conclusion that I need to save about $800 a month in order to afford a median down payment in San Diego in 7 years. That is 27% of my (only me, not boyfriend) monthly income, and that is after spending 30% on rent and contributing to my retirement account. Ultimately, at my current income, it means I have about $100 dollars to spend a week, which includes ALL expenses outside of rent, bills, and payments. So $100 a week to spend on gas, food, medical expenses that come up, any emergencies or travel, and leisure (which does not exist for us).

Realistically, it will take me 15-23 years to save for a median down payment at my current income. so I can be a home owner by 40, sweet!