Millennials underestimate the cost of a down payment

More millennials have been motivated by the COVID-19 pandemic to think about buying a home, but do they have enough money saved to go ahead and buy one?

That was one of the questions posed by Point2Homes in a recent survey, which found that 74% of millennials, aged 25 to 40, say they’re interested in buying a home within the next 12 months. But the survey found that 88% have significantly less savings than the average amount needed for a down payment, which is $62,600. Another 14% of millennials said they have nothing at all saved up for a home.

Down payment programs exist for those who need financial help. But it’s not clear if such programs will be sufficient for most millennial home shoppers. It’s possible to buy a home with a down payment of between 0% and 5% with some programs, but they also come with higher costs.

Around 40% of millennials said they have set aside less than 10% of their income to save for a down payment. What’s more, another 40% said they believe savings of $10,000 or less would be enough to pay for a down payment on a home.

“But even if they’re considering 0%, 3%, or 5% down payment mortgages, very few of the 100 largest cities in the country have houses for sale that are spacious enough to meet millennials’ pandemic-induced demands,” the researchers said.

Some millennials believe they might be able to save up more money after moving back in with their parents, which is a growing trend since the COVID-19 pandemic began.

“The coronavirus outbreak has pushed millions of Americans, especially young adults, to move in with family members,” the survey said. “The share of 18- to 29-year-olds living with their parents has become a majority since U.S. coronavirus cases began spreading early this year, surpassing the previous peak during the Great Depression era.”

There are now 26.6 million 18-to-29 year olds living back at home with their parents, up 2.6 million since February. Assuming that these people still have jobs, they may be able to save more while living back at home to find the money for a down payment.