Millennials and Home Ownership
In this post we are going to look at some interesting trends related to Millennials and home ownership. Since the real estate crash in 2008, we have all heard ad nauseam about the emergence of the vulture investor and their impact on home buying. But I would wager a bet that you have heard little if anything about millennials and real estate other than the majority of them are sitting out of the market at this time.
Yes, it is true many are not actively considering purchasing a home any time soon, but it is not because they would not like to own. It is because they hear so much conflicting, incomplete and/or inaccurate information and they have concluded it is next to impossible or just too much hassle.
However, many Millennials are purchasing. Specifically we are going to look at a growing trend in Millennial multi-unit property purchases. We will discuss how they are doing this with little out of pocket expense.
Why Multi-unit Properties
Many Millennials want to own a home and want to do it with little to no money down and no real money out of pocket to make the payments. In other words, they want their cake and to eat it too! Multi-unit properties offer as close to that as possible. Purchasing a multi-unit property as an owner-occupant using an FHA or VA loan allows for little to no money down and the ability if qualified to use the rental income of the units leased as qualifying income for the loan. Each option has a benefits, your realtor can refer you to a lender who can help you determine which is right for you.
FHA Financing of Multi-unit Properties
FHA offers owner occupant purchases of multi-unit dwellings up to a fourplex as long as it only occupies one parcel. The FHA loan limit is $271,050.00, which means a buyer can purchase a home with a maximum value of $280,850.00 with as little as 3.5% down. FHA also allows 75% of the rental income of the remaining units with active leases to be considered eligible income. As with any loan, HUD requires the buyer must be credit qualified and have a minimum fico score of 620.
FHA also requires the buyer/borrower pay mortgage insurance premium (MIP) both upfront and annually. The upfront MIP can be added to the loan amount. The annual MIP will be escrowed monthly in addition to the taxes and insurance, therefore the monthly payment will include principle, interest, taxes, insurance and MIP. Last, the borrower will be required to have 2 months of monthly payments held as post close reserves. Because of the low out of pocket costs, FHA loans are the most prevalent loan product used to purchase multi-unit homes wherein the buyer chooses to live in one unit.
VA Financing of Multi-unit Properties
The VA also offers an attractive product to purchase multi-unit homes as owner-occupant for qualifying veterans. They can obtain a VA loan up to 417,000.00 with zero down. Unlike FHA, VA does not have a mortgage insurance premium, either upfront or annually, but it does have an upfront funding fee.
The VA also requires the buyer/borrower to have experience as a landlord or to have a very strong credit profile, in order to count the rent from the other units as part of your monthly income to help you qualify. The VA does not require any monthly payments in reserve post-close for the purchase of a duplex. It does require six months of mortgage payment reserves (principal, interest, taxes, and insurance – PITI) on triplex or fourplex purchases.
A lot of labels are attributed to Millennials; they are most often referred to as the “I want it now” generation. They are price-conscious consumers and believe it is their right to have what they want, when they want it. The benefits to purchasing a multi-unit home as an owner-occupant using an FHA or VA loan are easy for them to understand. To basically use their credit to invest in home ownership, but to in essence have others pay for it (i.e. the renters of the remaining units) is a no brainer for them and with rents increasing, the timing could not be better to purchase this type of property.
Many Millennials have a gravitas for everything vintage, and that makes the older multi-unit properties in the urban core especially attractive. Their purchase of these homes with little no money down and little monthly contribution to the payment leaves them the funds needed to revitalize the property. Many are embracing the period charm from the time the properties were developed and adding to the distinct character of the urban core of central Phoenix.
As a Central Phoenix Realtor, Roberta has extensive experience finding distinctive and unique living options in and around Phoenix and is always happy to share her knowledge and expertise with each and every client. Contact Roberta Candelaria today if you want to work with the best in Central Phoenix.