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Tempted by Low Mortgage Rates, Millennials Find Homebuying Overwhelming

Rudro Chakrabarti
Tempted by Low Mortgage Rates, Millennials Find Homebuying Overwhelming

Millennial would-be homeowners are getting FOMO as mortgage rates plunge to historic lows and home values rise — but the thought of homebuying is stressing them out, a new survey finds.

Nearly half of 23- to 38-year-olds who hope to buy a house in the next year say their top priority for a mortgage is snagging one of today's rockbottom rates or one of the affordable monthly payments that go with them.

Yet 75% say they find the whole homebuying thing overwhelming, according to the survey from TD Bank.

Millennials sense it's a good time to buy a home

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Millennials say homeownership is still the American dream.

The bank talked with more than 850 millennials who plan to buy their first home in 2020. The vast majority (83%) said owning a home is still the American dream, and most (68%) believe now is a good time to buy.

Around 9 out of 10 say they want to become homeowners because they see a home as a good long-term financial investment.

Houses have been going up in value pretty quickly in recent months. Prices shot up 7.8% throughout last year, to a median price of $274,500 for an existing home, the National Association of Realtors has reported.

While young buyers may see a home as an asset that will appreciate nicely, they also see the downside of today's rapidly rising home values. About a quarter (22%) say they've held back on purchasing a house because of steep prices in the area where they want to live. More than a third (36%) say homes are overpriced.

At the same time, 7 out of 10 admit they've set a high bar for their first home because they want it to have the same amenities as Mom and Dad's house — or wherever it is they're currently living.

With mortgages, young buyers want a low rate and more

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Young borrowers are most interested in scoring a low monthly mortgage payment.

First-time homebuyers in their 20s and 30s who feel intimidated by the process say a mortgage lender is the most reliable source of advice on how to get through it. That's smart, says Rick Bechtel, head of U.S. residential lending at TD Bank.

"A knowledgeable loan officer will work hand-in-hand with a buyer to help them understand mortgage and homeownership costs and establish a realistic budget," Bechtel says, in a statement.

In terms of what's most important when getting a mortgage, the top choice among millennial buyers (picked by 27%) is to land the lowest possible monthly payment. That's followed by paying off the loan quickly (22%), then bagging a low mortgage rate (20%).

Young buyers are in luck on that last count, because rates on home loans have been falling — and have hit record lows for midwinter.

A 30-year fixed-rate mortgage is currently averaging 3.51%, which MoneyWise.com discovered is the lowest for late January in the nearly 50 years of weekly mortgage rates surveys from mortgage company Freddie Mac.

The benchmark mortgage rate has plunged nearly a full percentage point from a year ago, when the average was 4.46%. A drop like that can make a huge difference in your monthly mortgage payment.

Millennial homebuyers have work to do

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Though they're eager to dive into the housing market and lock down a low mortgage rate this year, many millennial first-time buyers are not financially ready to take that big step, TD Bank found.

Only around half (53%) say they've taken the time to look at their credit reports. Issues lurking within credit reports or a weak credit score can make it tough to nail down a home loan at one of today's outstanding mortgage rates.

Come on, millennials — you can easily get hold of your credit reports and check your credit score for free. And if your score needs help you can get to work on raising it, to make yourself look more attractive to lenders.

Just half the survey respondents (52%) said they've started saving for a down payment, using a high-yield savings account or some other method.

Nearly half (49%) say they're counting on their parents to help with the money that's needed upfront when you buy a home. They're typically relying on The Bank of Mom and Dad to provide down payment money or contribute to closing costs.

And finally, while millennials may be hungry to join the ranks of homeowners, they don't see any reason to rush into something that might lead to disappointment. A majority in the survey (84%) say they'll hold off on buying a home if they can't find something great.

In other words, something that matches their own personal idea of the American dream.