A new survey of over 1,000 potential U.S. home buyers by Unison Home Ownership Investors and commissioned by Atomik Research revealed the financial challenges of saving for a down payment and what people are willing to sacrifice to make home ownership possible.
What would you compromise?
Surprisingly, there are many luxuries people would quickly give up for a down payment that they would not need to pay back.
Overall, the report found that for a gifted 10% down payment, people would happily forgo their dream car (44%), vacationing for the next five years (38%), eating out for the next five years (35%) and their right to vote (22%). However, not everything is worth the sacrifice. In fact, driving appears to be a non-negotiable, with a mere 9% willing to give up their driver’s license.
When looking at the same data, but based on generation, the observation can be made that Baby Boomers likely already own homes and have more money saved and therefore would not compromise luxuries for down payment support compared to the younger Millennials who are just starting to enter the home buying process. In fact, 26% of Millennials are willing to trade away their right to vote compared to 20% of GenX and 7% of Baby Boomers; the same applies to the 12% of Millennials willing to give up their driver’s license compared to the 7% of GenX and 5% of Baby Boomers.
In addition, Women have fought hard for the right to vote and are continuing to fight to have their voices heard and to have a seat at the table. So it’s understandable that Females are less likely to give up their right to vote (21%) compared to Males (24%) as well as their driver’s license (9%) compared to Males (14%).
Another statistic showed that the majority (58%) of people would be more likely to date or marry someone who already owned a home at the time their relationship began. These responses were in alignment across genders with 60% of Males compared to 58% of Females; and generations with 58% of Millennials, 59% of GenX and 56% of Baby Boomers all saying Yes.
But regardless of generation and gender, the data shows that people are willing to exchange superfluities for their down payment and have a preference towards engaging in a relationship when a house is already in position. While everyone is in agreement that purchasing a home is a good agreement (92%), there is still an unrealistic view on how long it should take to save for a down payment.
The disillusionment gap: the challenges of saving for a down payment
The survey found that the majority (84%) of respondents think it would take under 4 years to save for a down payment. However, most people (67%) with the intention of buying a home in the next 1 to 2 years have under $7,000 saved.
Females appear to have less saved for a down payment, with only 30% having over $7,000 saved; on the other hand, 51% of Males have more than $7,000 saved. Generationally, Baby Boomers, who have had more time spent in the workforce, have more saved. Only 27% of Millennials have over $7,000 saved, compared to 37% of GenX and 54% of Baby Boomers. In fact, of those, only 9% of Millennials have over $15,000, 13% of GenX and 36% of Baby Boomers.
So why aren’t people able to buy a home? Aside from the obvious lack of saving for a down payment (46%), people cited that a low credit score (37%), a lack of overall savings (33%), the cost of a monthly payment (32%), high rental costs (26%) and a lack of homes to choose from (25%) were all factors. But diving into why it’s so difficult to save, the survey found that in order, debt (39%) like student loans, car payments and credit card bills topped the list.
While these factors are clearly laid out as the limitations for home ownership, 68% of respondents were the first to agree that they could really benefit from first-time home buyer education through a professional. And while this was consistent for Millennials (73%) and Gen X (72%), only 41% of Baby Boomers felt the need for further education.
Overcoming the financial barrier
While 75% of people are confident and secure about their job, 73% also think home prices will increase and 65% believe mortgage rates will increase in the next year.
To address the need for funds for a down payment, people are open to alternative forms of financing. The survey found that 26% said they would consider crowdfunding a down payment, and 29% of people said they would use an equity investment or home ownership investment.
While there are certainly economic and financial challenges across age and demographic profiles, the proliferation of alternative home financing solutions provides greater opportunity to address these challenges in a responsible way than in previous years. These methods will continue to reinforce the age-old idea of the value in owning a home.