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Millennial homebuyers challenged with down payments

Christen A. Johnson
Chicago Tribune

Chicago — Hailing from Chicago’s western suburbs, Naul Valdez, 30, and his fiancee, Lily Flores, 30, started their house-hunting last year looking for a single-family home with a backyard and a garage.

But realistically, Valdez said, pricing and inventory in the city weren’t working out for them — even though they went in with a vision and a plan.

Naul Valdez and Lily Flores moved into their newly-constructed Near West Side home in Chicago in August 2019.

The couple saved for a full year to be ready to buy when the time came, “got (their) credit scores in check,” and researched the home-buying process to know what they were getting into, Valdez said.

“We planned on two to three years of renting in the city, (and) ended up doing three,” Valdez said. “And as soon as our lease was up, we hit the scramble to find a place.”

In August 2019, the pair bought a three-bedroom, two-bathroom condo on the Near West Side of Chicago on a nice, quiet little street dotted with single-family homes.

Valdez and Flores are among the ever-growing group of millennial homebuyers. In line with national trends, just over half of homebuyers in the Chicago area are 24-39 years old, according to a analysis released last week.

Meanwhile, a January survey found that while 70% of millennials feel that buying a house is an essential element of the American Dream, the achievement can feel challenging for many.

The Clever Real Estate report, which took a deeper look at some of the obstacles the incoming generation of homebuyers is facing, surveyed 1,000 inter-generational Americans — millennials, Generation X and baby boomers — who were planning to buy a home this year.

Respondents were given 21 questions to answer. Millennials were defined as people age 19-35.

Charts showing percent of homebuyers by age group.

For the second consecutive year, saving for a down payment proved to be the biggest challenge for a millennial to buy a home; half said this was their biggest barrier, according to the survey.

It makes sense, then, why 70% of millennials who are buying this year are not planning to put down the suggested 20%, and why millennials are three times more likely than previous generations to ask family members for help with a down payment, the study said. For millennials who do get fronted the cash, they can expect as much as $10,000, according to the study.

Anna DeSimone, a mortgage lending expert and author of “Housing Finance 2020: New Mortgage Programs for the New Generation of Homebuyers,” says a down payment can be the biggest hurdle for millennials simply because “it’s hard to save money.”

“When you have people who’ve been paying high rents, student loans, day care, car payments — these (expenses) aren’t going away,” she said. “They’re still going to have medical bills, car insurance, etc., and these utilities are not on a credit report. It really can make a difference in buying a house. With all these bills, they have a hard time.”

Madeline Bouche, 28, and her husband moved to a two-story town home with two bedrooms and 21/2 bathrooms in Chicago’s South Loop two years ago. After the couple paid off student loans, they began saving for a down payment, Bouche said.

“Student loans kept us from buying a home even earlier than we could,” she said. “We put all of our efforts into paying student loans completely off, and that is what allowed us to buy a house. We took all the money we had been putting to student loans and started saving toward a down payment.”

Bouche and her husband ultimately put down 10% on their town home, she said.

The whole process, from paying off loans to signing on the home, took Bouche and her husband about three years total, “and that was pretty aggressive saving,” said Bouche.

More than 25% of millennials planning to buy a home in 2020 have less than $1,000 in savings, according to the Clever Real Estate study. The median price for a home in the United States is about $310,000, but most millennials are looking to pay about $210,000, the study said.

Mabel Guzman, a Chicago real estate agent with 22 years in the business, said there there has to be some myth-busting about needing 20% down, especially for young people buying a home for the first time.

“For a lot of millennials, there has to be a demystifying of the housing purchase process,” she said. “(Sit) down with folks in advance to see what you know and to fill in the blanks.”

DeSimone echoed the sentiment. “People can’t even think about buying a house without having $10,000 that they think they need. Find out more about zero-down payment programs. If someone says no, go ask someone else,” she encouraged.

It seems the message is starting to sink in; millennials put an average 8.5% down when buying homes in December, while the successive Generation Z made average down payments of 5%, according to the study.

Valdez and Flores put down 15% as a down payment, without using any money from family members, Valdez said.

“Every $5,000 makes a huge difference in payments,” Valdez said, but he and Flores wanted “available funds to have money to furnish the place.”

Space and family growth are motivators for millennials to buy a home, based on the study’s findings. One in three said they wanted to buy a house because they want a family; 24% said they wanted to accomplish a significant financial goal.

For Bouche and her husband, it started with a pet, but it also made long-term financial sense.

“We wanted a dog, and our old place wouldn’t allow us to have a dog. That is definitely a part of the reason,” said Bouche, who chuckled while acknowledging that is “a millennial answer.” “We also didn’t want to move a bunch of times, (and we) wanted to stay in the city and crunched numbers. Financially, it made sense to build equity in a home instead of throwing it down the tubes to rent.”

According to the Clever survey, 45% of millennials were stressed or anxious about buying a first home, but Valdez “felt it was pretty simple.” He knows that his life stage has a lot to do with that sentiment though.

“Thankfully we’re kind of the exception to this (survey),” he said. “If I had been in my first job and making whatever I was making — and same with (Lily) — we would not have been able to afford this, so I get it 100%. Not everyone has parents to back them and a good enough job. I think it’s a lot tougher nowadays than it was for boomers.”