Dan Grzywacz, senior vice president at Mortgage One in Grand Rapids, sees millennials having more confidence in the home-buying process now compared to just a few years ago. Photo by Johnny Quirin
Change is coming on the home-buying front.
The National Association of Realtors has indicated the millennial generation now comprises the largest share of homebuyers at 32 percent, which is larger than all baby boomers combined at 31 percent. Millennials also have the largest share of first-time buyers at 68 percent.
While millennials may encounter financial challenges, such as student loans, credit card debt and car loans, the typical down payment from young homebuyers is 7 percent, according to the NAR’s 2015 Home Buyer and Seller Generational Trends report.
Nearly 93 percent of millennial buyers secured a fixed-rate mortgage, about 56 percent secured a conventional loan, and 28 percent used a U.S. Federal Housing Administration-backed loan between July 2013 and June 2014.
Joshua Nawrot, vice president of lending at Grandville-based Northern Mortgage Services, said the organization works with a lot of millennial buyers, especially with rising rental rates.
“We actually see a lot of millennial buyers purchasing a house and putting a small down payment down,” said Nawrot. “One the biggest things as an industry we are really fighting right now is you don’t need 20 percent down to purchase a house. There are a lot of programs out there, anywhere from 3 percent down conventional, 3.5 percent down FHA, and (guaranteed rate) of 5, 10, 15 and 20 percent buyers.”
The NAR also indicated the millennial generation represents nearly 13.8 percent of the population in the Grand Rapids-Wyoming metropolitan area, and the MSA is ranked among the top 10 purchase markets in the country for aspiring millennial homeowners between the ages of 25 and 34.
The type of neighborhood that interests millennials depends on their family situation and whether they want to be in the midst of the action in downtown Grand Rapids, according to Nawrot.
“We see a lot of young couples want to be in the suburbs … Hudsonville, Jenison, Georgetown, Caledonia and Rockford,” said Nawrot. “We also see buyers wanting to be downtown in the action, so Eastown, Alger and just outside of East Grand Rapids. The downtown culture has really been developed. It all depends.”
As of late 2014, purchasing a home was nearly 38 percent cheaper on average than renting when assuming a traditional 20 percent down payment with a 30-year fixed mortgage, according to a July 2015 Accenture Mortgage Cadence report.
“In some cases their new monthly mortgage payment, including taxes and insurances, is actually less than what they were paying in rent,” said Nawrot. “Millennials are also very value-focused buyers where they want to know they are investing in something rather than just paying rent.”
The NAR report noted nearly 39 percent of millennial buyers purchased a house for the sole interest of owning their own home; 6 percent indicated they purchased due to the affordability of homes.
Millennial homebuyers were more likely to view purchasing a home as a good financial investment, at 84 percent compared to 79 percent of all buyers. Nearly 42 percent of younger buyers also viewed owning a home as a better investment than stocks.
Dan Grzywacz, senior vice president at Mortgage One in Grand Rapids, said there was a period of time after 2008 when home purchasing confidence was low, especially with millennials who watched their parents go through foreclosure, bankruptcy or losing their jobs.
“There was some hesitancy with the millennials, and now they are starting to have confidence and starting to look at home purchases,” said Grzywacz.
Another trend Nawrot said he has noticed when working with millennial homebuyers is the amount of research they put into the process prior to meeting.
“They really want to understand the process differently than regular buyers,” said Nawrot. “We find they ask a lot more questions, they are more intense, and it sounds like they almost have done their homework more in a lot of cases.”
While nearly 44 percent of millennials and about 43 percent of buyers across all age groups looked online for properties for sale as their first step in the process, an additional 17 percent of buyers age 34 and younger looked online for information about the home-buying process, according to the NAR report.
“Technology is really important. They want it, they want it now and they want it at their fingertips,” said Nawrot. “We are seeing a lot more technology oriented, both on the purchase agreements, doing it that way, and also disclosure through mortgages.”
AMC’s report also highlighted how the emphasis on technology and connectivity of the millennial generation is different from previous generations, and it is a “logical extension, then, that millennials will also be doing their mortgage shopping online.”
With the newest market segment doing the bulk of their research on their phones, tablets and computers prior to meeting with mortgage-lending professionals, the AMC report highlighted the significance of providing easy-to-access information and tools from “initial application to documentation and e-signature.”
Nawrot said one of the biggest challenges is adapting to the expectations of instant turnaround, both as individual lending organizations and as a larger industry. Northern Mortgage has hired additional staff members to be able to provide services to clients when a lending professional is meeting with another client, according to Nawrot.
“The millennial generation, which I am a part of, is a very ‘instant now’ generation. They like answers quick and they like to text,” said Nawrot. “If they leave a voicemail, even if you are calling back an hour or two later, sometimes that is too long, and being able to move at that fast pace of the generation is really, really crucial.”