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Millennials are buying homes differently than their parents' generation.
- Millennials are still planning to buy homes, according to data collected by real estate listing site Clever.
- To do it, they're using strategies like making smaller down payments and settling for smaller homes.
- They're also getting help from their families, and leaving the city for the suburbs.
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As millennials start to buy homes, it's obvious how the challenges they've faced have changed their perspectives on homebuying.
Compared to their parents' generations, millennials are renting longer and buying homes later, buying smaller homes, and forgoing some of the traditional rules of homebuying to afford their purchases. They're also willing to do whatever it takes to become homeowners, including making longer commutes and asking family for help.
Home listing site Clever's 2020 Millennial Homebuyer Report asked 1,000 Americans who plan to purchase a home in 2020 what they'd like to see in their home, what they plan to spend, and more.
1. They're settling for smaller homes
As millennials have started to buy homes, a pattern has emerged: They aren't interested in their parents' big homes. According to Clever's survey data, millennial homebuyers say 1,700 square feet is enough space. For reference, boomers - who might even be downsizing - say they're looking for a place that's around 1,900 square feet.
In part, millennials are more interested in quality than quantity, and are more interested in minimalism than boomers. Millennials are also interested in walkability, which several real estate agents told Business Insider's Hillary Hoffower was a top priority for their millennial clients.
2. They're skimping on the down payment
For a generation that is already financially behind because of student loans, increased costs of living and relatively stagnant wages, and a lack of savings, saving the standard 20% of a home's value for a down payment seems unattainable.
According to Clever's data, 70% of millennials say they plan to put down less than 20% on their next home, and a full 53% them plan to put down less than 15%. By contrast, 49% of baby boomers said that they plan to put down more than 20% on their next home purchase.
And for millennials living in expensive metro areas, it's even more daunting. In Los Angeles, for example, where the median home value is about $717,000, a 20% down payment alone would come to $143,400, according to Zilllow.
By putting down less than 20%, millennials are agreeing to take on private mortgage insurance, which generally costs between .5% and 1.5% of a home's value, in order to pay less up front and bring homeownership within reach.
3. They're getting help from family
It's no secret that many millennials are still asking their parents for help. And, for more than a quarter of millennials, this assistance extends into homebuying as well.
Clever's data shows that 27% of millennials buying in 2020 expected to get a loan, inheritance, or a gift from family to help make their down payment. Just 14% of baby boomers said the same.
It's not surprising that millennials are turning to their family for help with their home-buying funds - a significant number of millennials have had parental help for a while now. Business Insider's Hillary Hoffower writes that many millennials still receive money from their parents regularly. "About 37% receive money monthly, and more than half (59%) receive money a couple times a year. Many are putting this money toward basic needs, both small and significant, like cell phones, groceries and gas, health insurance, and rent," Hoffower reports.
As millennials have struggled to save, it's not surprising that they're waiting on a windfall or a gift to buy their first home.
4. They're heading for the suburbs to get what they want
Many millenials are finding that homes are simply too expensive in the urban cores where they live and work. According to data from CityLab, urban homes are valued at 25% more per square foot than suburban homes, putting them even farther out of reach for millennial buyers. So, millennials are moving out to afford what they want.
According to Clever's data, about 34% of millennials said a main reason they plan to buy a home is having or wanting to have a family, and 32% said they're buying to get more space. Plus, they want features that are hard to find in the city. About 51% of millennials said that a garage was important, and more than 40% said a large kitchen and room to grow into were must-haves, according to Clever data.
Millennials are moving to the exurbs, or areas outside of affluent suburbs, as a result. While it might mean longer commute times or a less convenient location, millennials are open to it to become homeowners. "Choosing to live in a more affordable exurb is a way for millennials to fast-track their path to homeownership," Hoffower writes for Business Insider. Millennials are making homes in the suburbs and exurbs, even if they're doing it much later than their parents did.
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