The study found that 21.9% – the largest percentage of Gen Zers – plan to put down 8% – 11% of the purchase price of a home followed by down payment amounts of 4% – 7% and 12% – 15%.
Millennials Got Cheaper Mortgages Than Their Parents
“As Gen Z looks to buy their starter homes in the next few years, they will face both high rates and high prices. It may be years before the housing market is affordable again,” Allison explains.
Affordability is a challenge for Gen Z homebuyers, but it's also a challenge for millennials and buyers of other generations. The Gen Zers now in early adulthood have had less time to accumulate savings than previous generations, which could make it more difficult to become a homeowner in the short term.
Almost a third (31%) of Americans think putting down 20% for a down payment is obligatory. However, 59% of current homeowners who have or have had a mortgage say their down payments were less than 20% of the home's purchase price, and just 29% put down 20% or more.
Older millennials put 11% down on average when buying a home
Older millennial home buyers -- those between 33 and 42 years old -- made an average down payment of 11% in 2022. Younger millennials put down 8% -- the lowest of any age group and well below the 20% threshold that is encouraged.
According to the National Institute of Retirement Security, 66% of working millennials have nothing saved for retirement.
According to American Housing Survey, in 2019, 47% of millennial FTHBs put down between zero and 5% on a home, while 15% put down between 6% and 10%.
As noted earlier, the typical down payment for first-time home buyers in America is about 6% of the purchase price. However, buying a home with as little as zero down is possible for USDA and VA borrowers, and others can put as little as 3% or 3.5% down.
If you put a large chunk of it into your down payment, you may not have as much available in case of emergencies. You may also need to be more careful with your monthly budgeting. In some cases, this can be very inconvenient. The money cannot be invested elsewhere.
Gen Z and millennials are "hacking" the housing market as high prices and interest rates make affordability difficult. The term "house hacking" refers to the practice of renting out a portion of your home or an entire property for an additional stream of income.
The current median income, half earn more and half earn less, for a Gen Z worker nationwide is around $37,300 according to an analysis by GoBankingRates.
Gen Z faces unique financial challenges
Yet, more than a third of young Gen Zers have also faced setbacks in the past year, the survey found, which may have led them to stop saving or take on more debt. Gen Z faces unique financial challenges compared to older generations.
It is a known fact that lifespan increases with each generation. For baby boomers, the average life expectancy is 70 years, for Gen X its 85, and newer generations like Gen Z and Alpha will likely exceed the 100-year mark.
On Friday, the National Association of Realtors reported that 2023 saw the smallest number of home sales in nearly 30 years. Last year was rough for homebuyers and realtors as a trifecta of forces made it harder than ever to buy a place to live. Or, at least the hardest in nearly three decades.
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And despite recent, record-high home prices and rising mortgage rates, Gen Zers are ahead of older generations. In 2022, 30% of 25-year-olds owned a home. At the same age 28% of millennials, and 27% of Gen Xers owned homes, according to real estate brokerage, Redfin.
“Well, $3,000 is not enough for a down payment on most houses,” says Jill Gonzalez, an analyst with WalletHub. “The lowest percentage of down payment required is 3.5% for an FHA loan. So $3,000 would be enough for an approximately $85,000 loan, although that's way below today's median home price.”
To purchase a $200,000 house, you need a down payment of at least $40,000 (20% of the home price) to avoid PMI on a conventional mortgage. If you're a first-time home buyer, you could save a smaller down payment of $10,000–20,000 (5–10%). But remember, that will drive up your monthly payment with PMI fees.
It is definitely possible to do. You can purchase with a “low down payment” loan. Loan programs that require only a 3% down payment are common and I have a major, national lender who even has a 1% program. Going with the 3% program, your $2000 would equal a 3% downpayment on a $66,000 purchase price.
Most lenders are looking for 20% down payments. That's $60,000 on a $300,000 home. With 20% down, you'll have a better chance of getting approved for a loan.
FHA loans require as little as 3.5 percent, and VA loans and USDA loans have no down payment requirement at all. Most homeowners don't put 20 percent down. In 2022, the median down payment among homebuyers was 13 percent, according to the National Association of Realtors (NAR).
A conventional mortgage is not backed by the government, providing competitive interest rates and terms. To qualify for a no-money-down conventional mortgage, you'll typically need a credit score of at least 620 and a debt-to-income (DTI) ratio of no more than 43%.
Millennials were born between 1981 and 1996 – the name refers to the fact many came of age around the year 2000. Although there is a crossover with the Gen Z group, the two are not the same.
You won't be surprised to hear that baby boomers tip the most frequently of any generation for most services, but then again, they're more likely to have the extra money to pay for a barista's tip -- on top of the $6 coffee.