It’s well known that many Americans are delaying or opting out of homeownership.
A new study by Country Financial points to what could be the biggest reason: Difficulty coming up with a down payment.
Forty-six percent of millennials and forty percent of Americans overall cited affording a down payment as the primary barrier to homeownership, according to the study, released Tuesday.
Despite the financial barriers, millennials are reported to be the most likely to purchase new homes within the next two years over any other age group. According to the study, “millennials are prioritizing purchasing a home ahead of getting married, paying off debt and traveling.”
In many situations, Americans have chosen to rent rather than purchase a home, despite the fact that a mortgage can prove to be more affordable over the long term. Only 11 percent of Americans claim that 40 percent or more of their salary goes toward a monthly mortgage, while 21 percent claim to spend 40 percent or more of their salary on rent; even though 47 percent of American renters believe that a mortgage would be cheaper.
Another barrier that may be preventing renters from making the jump into homeownership could be the lifelong commitment that buying a home presents. According to the study, one in three Americans are still paying off their mortgages after they turn 65 years old. The financial barrier presented to homebuyers is also depicted in the relatively low down payments being made. A reported 54 percent of American homeowners claimed to put down 10 percent or less of their home’s value, while three percent said they put down five percent or less.
A look at the numbers in Illinois is instructive. According to a poll done by Ipsos Public Affairs, in a study of Illinois residents, 67 percent of millennials cited student loans as the number one financial barrier to homeownership. A majority of Illinois residents aged 35-49 claimed low credit scores as their biggest barrier, while almost 70 percent of residents 65 and older mentioned renting as a more affordable option.
Huge numbers of Illinois millennials won’t be purchasing homes any time soon: 79 percent of millennials disclosed that their plans for purchasing a home are more than four years into the future. Instead, they choose to prioritize travel, paying off debt and getting married before looking for a permanent place to settle down. The most likely homebuyers in Illinois are residents 50-60 years of age, according to Ipsos. This trend of purchasing a home so late in the game may partially explain why 48 percent of current Illinois homeowners over the age 65 claim to be paying off a mortgage.
The effort and time it can take to save up for a down payment on a home can be a daunting for many. When asked how long they thought it would take to save up for a down payment, an interesting S-curve takes place among the sampled age ranges. A majority of residents between the ages of 18 and 34 were paired with those aged 50-64 in thinking that saving for a downpayment takes only 1-3 years, while participants aged 35-49 and 65+ believed that saving would take more than six years.
Following close to the national norm, 47 percent of Illinois homeowners claimed to have made a downpayment of 6-10 percent of their mortgage loan. However, 17.5 percent of residents put down five percent or less, a far greater number than the nationwide statistic.