| 
Sky-high Boston rents make it difficult for even Millennials with good jobs to save money. As Greater Boston home prices continue to rise, many of these young homebuyers have to rely on gift money for part or all of their down payment.
Ginnie Mae reports that between November 2016 and January 2017, the average age of a Millennial mortgage applicant in Greater Boston was 30.7. Seven out of 10 of those were purchase applications. About half of the applicants were single; the other half, married.
Greater Boston Millennial mortgage applicants resemble the national average in most ways, except two. Their loan amounts are about double the national average and their average FICO score was 746, significantly higher than the national average of 724.
Financial Help From Relatives
Millennial Kyle LeDuc sold $28 million in mortgages last year; about half of his clients were fellow Millennials, the Fairway Independent Mortgage senior mortgage planner said. His Millennials clients are overwhelmingly first-time homebuyers and many rely on gifts from family for their down payment.
“Of the Millennials I worked with last year, about half of their down payments contained some gift money, usually from their parents,” LeDuc said. “Ninety percent of the individuals who received a gift from family structured their financing with a down payment of at least 10 percent or more. Of the individuals who used only their own funds, 50 percent structured their financing with a down payment of at least 10 percent or more.”
Support from parents or other relatives can take forms other than an outright gift of funds, said Realtor Danielle Guigli, of Keller Williams Boston. Approximately 70 percent of her Milllennial clients receive financial assistance from their parents when they buy their first home.
“I’m seeing a lot of parents who can support the financing, whether it’s cosigning the mortgage or gifting a down payment,” Guigli said. “These buyers already have loans and debt, and rents are so high, so it’s hard to save that big down payment. We try to figure out a way to position them so they don’t end up in financial turmoil, but they can buy a home they’re comfortable with and they love.”
Not All Millennials Are So Fortunate
Guigli said many of her clients who aren’t fortunate enough to receive financial help with their down payments earn good salaries, but think that because they don’t have a 20 percent down payment, they can’t buy a home – but that’s not necessarily the case.
“I have a loan officer I partner with to put on first-time homebuyer seminars, which give buyers the opportunity to ask questions,” she said. “Most buyers these days are very savvy. We ask them what they pay in rent, what they’re comfortable paying in a monthly payment. We help them get their ducks in a row and talk about how to get their credit scores up.”
Guigli said her Millennial clients are extremely value-conscious and while they aren’t ready to move out to the suburbs, they aren’t afraid of looking at neighborhoods outside of downtown Boston, where there’s more room for home values to climb after they buy.
“I find now that Millennials kind of enjoy the outskirts of the city like Cambridge, Somerville, Dorchester and Brookline,” Guigli said. “Parking is easier, they get more space for their money. They’re savvy and want to be in the up and coming neighborhoods. They want to get in early and capture that value.”
LeDuc said he is also seeing Millennial clients fleeing the high-priced Boston market for more affordable areas with access to public transportation.
“In Boston it’s extremely competitive in terms of increasing price ranges,” he said. “It’s pushing Millennials toward the outside of the city toward more affordable areas like Quincy and Weymouth.”
Since there is no end in sight to the rise in home prices, LeDuc counsels his buyers that falling short of a 20 percent down payment to avoid private mortgage insurance (PMI) isn’t as scary as it sounds – borrowers can petition lenders to drop the PMI requirement when home equity exceeds 22 percent of the value of the property.
“I never want a borrower to feel cash-strapped,” he said. “They need to be educated and understand how the backside of things work. There’s no incentive for someone to make a 7 percent down payment versus a 5 percent down payment. Does it make sense to put that extra $10,000 down on the house to lower the monthly payment $12? If they invest that $10,000 in something more liquid and give it an average rate of return 2 to 3 percent, they’d have the money if they needed it and their net worth would ultimately be higher.”
However, lower down payments and mortgage contingencies make it more difficult to compete.
“It is a competitive market,” Guigli said. “Prices are high and inventory is low. And there are cash buyers, international buyers, empty-nesters and a lot of other external factors to compete with. Timing is crucial and communication has to be crystal clear. If you’re working with a loan originator who has a great team and you can communicate that to the seller, your offer is as good as cash.”
Editor’s Note: This story has been updated to correct the volume of mortgages Kyle LeDuc sold in 2016; it was $28 million, not $14 million.
