One of the most formidable obstacles facing millennials in today’s housing market is having enough cash saved for a down payment, especially given their substantial student loan debt and high rents eating up a large portion of their income. But the findings from our latest survey of more than 750 Redfin agents conducted this month suggest that there is hope for those who want to become homeowners but worry they don’t have what it takes to compete.
When asked what the typical down payment was for successful homebuyers in their market, more than half of the agents surveyed cited a down payment amount below 20 percent. One in four agents reported their buyers being successful with a down payment between 3 and 5 percent. Success with a low down payment is even possible in highly competitive markets. Twenty-two percent of Redfin agents in California — a state notorious for bidding wars and high prices — said their clients were successful with 3 to 5 percent down.
“The conditions that challenged first-time and millennial homebuyers this spring are starting to ease,” said Redfin chief economist Nela Richardson. “There are fewer bidding wars and less of a need to escalate significantly above the list price to get an offer accepted. The pace of the market is also slowing, which helps buyers since they can now afford to be patient. Sellers are getting used to the idea that all-cash buyers and investors have given way to traditional buyers who need financing to purchase. They are demanding less from buyers than they were just a few months ago, which means a wider spectrum of buyers and down payments can be successful now.”
Sage advice from the experts
Now that the market is becoming a more inviting place for buyers, we asked agents to share advice they’ve given to their clients this year. Roddy de la Garza, a Redfin real estate agent in Los Angeles said:
“I work with home-sellers and have reviewed thousands of offers. One major piece of advice I always give to sellers is that the highest offer is not necessarily the best. You have to look at the whole package. If a buyer has a low down payment but comes in with a fully pre-approved and underwritten loan agreement from their lender, and agrees to waive the appraisal contingency, that’s practically as good as cash.”
Many of the agents we surveyed agreed. Seventy-four percent said that in the past year they have advised buyers to get a fully pre-approved and underwritten loan package prior to making an offer. Sixty-one percent told sellers the highest offer isn’t necessarily the best — heartening news for buyers who don’t meet the high financial standards that the current conventional wisdom has set for them.
We also asked Redfin agents what advice they would offer specifically to millennials given the unique challenges of their generation. Here’s what they had to say:
“Talk to a lender now and become educated on all of your options, even if you don’t think you’re able to buy. You might be surprised at the possibilities,” said Tracy Salisbury, a Redfin real estate agent in Seattle.
“Set realistic expectations for your first home. Buying a small, starter home that’s not move-in ready can be the first step to ending up in your dream home further down the line,” said Molly Moran, a Redfin real estate agent in Tennessee.
“It’s simple really — do your best to spend less than you earn. Buying a home means building wealth and if you are willing to make some compromises, your mortgage payment will likely be less than your rent,” said Ali Ban, a Redfin real estate agent in Hawaii.
About the Survey
Redfin’s survey was conducted between Sept. 15 and Sept. 18, and includes responses from 762 agents in 38 states and Washington, D.C.