« »

Monday, September 16, 2013

Homes and home loans for millennials

Home ownership is a lower priority for Generation Y
The American Dream differs for Gen-Y
By Gina Pogol 

Generation Y’s American Dream is beginning to shake up housing markets nationwide. Yes, young adults between 18 and 35 want to own their homes, even after the recession. However, the whole 3-car-garage-gourmet-kitchen-big-fenced-yard thing just doesn’t appeal to them.

This new breed of first time homebuyers is so into living digital that more than half of those surveyed by Better Homes and Gardens believe a home's gee-whiz technology is more important than its curb appeal.

Generation try: Millennials unfazed by fixer-uppers

Three quarters of this next generation of homebuyers want customized and purposeful nests, not the open floor plans and big spaces favored by Baby Boomers. Nearly half eschew developer’s offerings in favor of custom homes. One in three are not afraid of fixer-uppers and most don’t mind doing at least some of the work themselves.

"These Millennials are getting into their first homes and they are very price conscious and according to the survey, when they buy a home they expect to put some sweat equity into it," said Craig Pyle, business development manager at Vivint, a home automation systems company experiencing a 54 percent increase in demand.

Green is good

The kids see little reason for formal dining rooms or double ovens but like tricked out home theatres. The most sought-after upgrades, however, are more practical and environmentally friendly -- an energy efficient washer and dryer (57%), security system (48%), and smart thermostat (44%). In fact, 84 percent of the younger Americans surveyed believe that uber-modern digital technology is flat-out essential to have in their homes.

"The thirst for more and more technology grows every day, but the wiring of a home is not as important, as long as the neighborhood has access to the Internet," says Robert Aldana, a Silicon Valley real estate agent. 

Home loans for millennials

Given their penchant for fixing and upgrading, Millennial homebuyers may find themselves best served by the FHA mortgage program. In addition to a low 3.5 percent down payment requirement and flexible underwriting, FHA offers 203(b) loans to buy houses and 203(k) loans to build or renovate the homes many Millennial buyers want. Even better, those who wish to make those desirable green home improvements can add an Energy Efficient Mortgage (EEM) to their FHA financing package.

Buying a fixer-upper with an FHA Mortgage

Here’s how the FHA 203(k) program works for Gen-Y buyers who want to fix up a home.
  • Find a lender approved to do 203(k) loans.
  • Apply for a home loan and get a pre-approval letter.
  • Find a property. The offer should contain language indicating that a 203(k) loan is required.
  • Find a contractor to write an estimate of work needed and materials required.
  • The lender will order at least one appraisal to get an “after renovation” value.
  • When the loan closes, the seller is paid and the remaining money is held in escrow for the contractor. The lender (or its agent) releases escrowed funds as work is completed.
If the only improvements to be financed are energy-related, the standard FHA 203(b) home loans method with an EEM can be used. To qualify for EEM financing, the energy efficient improvements must be cost effective. That means the total cost of the improvements must be less than the total value of the energy saved over the useful life of the upgrade.

Cost effectiveness is determined by an approved energy consultant using a Home Energy Rating System (HERS). The cost of the energy rating report and inspections may be financed as part of the cost effective energy package.

Millennials can install their energy improvements after their home loan closes. The lender deposits the money in an escrow account, and the funds are released to the borrower after an inspection verifies that the improvements are in and the energy savings will be accomplished.

Millennials have their own unique requirements in the homes they choose and the loans they use. Real estate in the US will never be the same.

About the author: Gina Pogol spent over a decade in mortgage lending, originating, processing and underwriting home loans. She has written about mortgage and finance issues for a number of publishers since 2006. Currently a senior marketing manager with Lending Tree, Gina advocates for consumers and loves answering their mortgage and personal finance questions. For more information: https://www.lendingtree.com/home-loan-overview

* Image license: Bruce Fingerhood; CC BY 2.0