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Industry Insight: Expanding Homeownership to the Millennial Market

June 22, 2017

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Last year continued a notable shift in the U.S. population, with Millennials (ages 18 to 34) overtaking the Baby Boomers (ages 53 to 71) to become the largest age group, the greatest percentage of the workforce, and the largest market segment for potential homeownership.

Millennials have been notably slow in purchasing their first home and have the lowest rate of homeownership for their age group since this statistic was first tracked by the U.S. Census Bureau in 1965.

However, as Millennials begin to enter their mid-30s, this generation may finally be poised for a surge in first-time homebuying, and will continue to represent a large and growing portion of the buyer pool. What can community lenders do to be a part of this surge?

Homeownership Outlook

Freddie Mac and Experian conducted a joint mortgage readiness study that included data from 11.6 million people, 3.5 million of whom were Millennials. The study suggests that many of the 75 million U.S. Millennials are ready or near-ready to qualify for a mortgage.

The study divided consumers into three groups:

  • Strong credit – Those with an Experian VantageScore® 3.0 of greater than 737 and a total debt-to-income (DTI) ratio of less than 45 percent.
  • Moderate credit – Those with a credit score of 661 and 736 and DTI less than 45 percent.
  • Weak credit – Those with credit score under 661, or total DTI more than 45 percent, or a recent foreclosure, bankruptcy or delinquency.

Meet the Dolans:
A Millennial Success Story

There are options available to help meet funding constraints. Take Willy and Christine Dolan; a Millennial couple from Portland, OR. Their loan officer led them to Home Possible®, Freddie Mac's three percent down solution – and the Dolans saw their homeownership dream become a reality. Watch their story.

The study found that 33 percent of Millennials had strong or moderate credit. Extrapolating this statistic, some 24.5 million Millennials are mortgage ready; and 86 percent of these – about 21 million – do not currently have a mortgage.

Of the 51 percent who have weak credit, Cynthia Waldron, Freddie Mac Quantitative Director of Affordable Lending Analytics and Research, is hopeful. "This is a huge percentage," she says, "but it is not necessarily as bad as it may seem." Waldron points out that many Millennials are ages 18–25, and simply haven't had enough time to build up their credit. "Also, 31 percent of those with weak credit are what we call ‘near-moderate' in that their credit score is between 601 and 660, and they potentially could qualify for a mortgage," she adds.

Other findings also point to a large population of mortgage-ready Millennials:

  • The average Millennial income of $53,600.
  • For those with student loans, loan payments average just 4 to 7 percent of their monthly gross income – making student loans a lesser factor than many have supposed.

Homeownership Obstacles

Location appears to be a significant obstacle to Millennial homeownership. "Millennials tend to live in major metropolitan areas where there are jobs and housing," Waldron explains. "These are places where they can make money, but many of these locations lack affordable housing stock." However, Redfin notes that Millennial homebuyers are expected to move from the coasts to Inland markets, where starter homes are more affordable.

The high cost of living in many markets is another obstacle. For example, in greater San Francisco, only 2 percent of mortgage-ready Millennials could afford a single-family home, and only 7 percent a condominium. (These numbers assume that "affordable" means that weak or moderate consumers would spend 25 percent or less of their gross income on their mortgage.)

Plus, younger Millennials (18 – 25 years old) often have not yet established a credit history; and many Millennials are unaware of the factors that raise their credit score or the actions they can take to do so.

Homeownership Opportunities

This is where you become a trusted advisor among Millennials in their community: provide educational outreach. No need to create your own program – community lenders can point consumers to existing programs offered by organizations like Freddie Mac and Experian, such as:

  • CreditSmart® – Freddie Mac designed this multilingual financial education curriculum and consumer outreach initiative to help consumers build and maintain better credit, make sound financial decisions, and understand the steps to sustainable homeownership.
  • My Home by Freddie MacSM – Freddie Mac designed this website as a one-stop resource for learning how to apply for a loan, understanding the closing process, selling a home, and succeeding as a long-term homeowner.
  • Experian Credit EducatorSM – This 30-minute phone-based education session is conducted by a trained Experian Credit Educator agent to review a consumer's credit score and run through credit report basics.

Additional Resources

For insight into how to expand homeownership to other growing demographic groups, check out these related resources:

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