Is 20% down the home buying standard? Millennials say no

With high student loan debts and a tough entry-level job market in recent years, Millennials have been slow to join the first-time homebuyer market. According to the latest U.S. Census released on July 28, 2016, Millennials’ homeownership rate has dropped to the lowest level of its age group in history.

Contrary to generational stereotypes, Millennials’ low home ownership rate does not appear to be the result of a lack of desire or motivation. In the most recent ValueInsured Modern Homebuyer Survey, 76% Millennial non-homeowners say they want to buy a home “now” if they could afford one. 78% say owning a home is a part of their personal American Dream. At the same time, only slightly less than half (47%) feel confident they can afford the down payment to buy a home.

It is important to point out that – or perhaps they see this as a solution – when Millennials think about down payment, they are not confined to the traditional notion of 20% down. In the same June 2016 study, ValueInsured found that only 39% of all Millennial non-homeowners plan to put 20% or more down to buy their next home. 61% plan to put down less than 20%, and over 1 in 4 (28%) plan to put down less than 10% to buy their next home:

  • 0-3% down: 10%
  • 4-9% down: 18%
  • 10-19% down: 33%
  • 20-24% down: 14%
  • 25-49% down: 7%
  • 50-99% down: 11%
  • 100% paid, no mortgage: 7%

ValueInsured found prospective first-time buyers who plan to invest 50% or more down payment are more likely to have higher household income and to rely on personal savings and investment as source of their down payment. Their counterparts who plan to invest less on down payment are more likely to have lower household income and to rely on family and friends as source of their down payment.

The latest findings should be of particular interest to home mortgage lenders, many of which are developing new products to help more Americans buy homes. Several major banks including Wells Fargo, Bank of America and JPMorgan Chase have introduced 3% down payment home loan programs this year. Some of these programs do not require buyers to purchase private mortgage insurance as was mandatory for home loans with less than 20% down in the past.