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According to The Future of Real Estate 20231 report, Gen Z homebuyers have very definitive ideas about the features they want when they buy their first homes:
- Sustainable materials (81%)
- Smart features (78%)
- New construction (77%)
- Vibrant communities (77%)
- Dedicated workspace (65%)
However, for Gen Z, the path to homeownership is turning out to be more challenging than it is for other generations.
In 2023, Gen Z made up only 4 percent of homebuyers2. Between 2022 and 2023, the Gen Z homeowner rate held steady at 26 percent, while the rate for millennials rose to 55 percent from 52 percent, and the rate for Gen X climbed to 72 percent from 70.5 percent3.
The one-two punch of high housing costs and high interest rates—plus the strain of inflation, entry-level salaries, and extensive student loan debt—make homeownership unaffordable for many younger buyers. But it doesn’t have to be.
Although it may not be as easy for Gen Z to buy their first home, it is possible. Here’s what you need to know to get started.
Homebuying Tips for Gen Z
As a first-time homebuyer, the most important thing you can do is arm yourself with the right knowledge, resources, and partners. These tips will make the experience less overwhelming and help you make educated decisions at every stage of the buying journey.
Estimate how much mortgage you can afford.
Before you attend an open house (even a virtual one), you need to get a general idea of your budget. Taking this step now will prevent wasted time and disappointment later.
Use a mortgage calculator to crunch some numbers and play around with different variables—such as down payment, insurance, and property taxes—to see how they impact your potential monthly mortgage payment.
Be sure to calculate your debt-to-income ratio at this stage, as mortgage lenders will lean hard on this number when evaluating your mortgage application, and you don’t want to be surprised later.
Once you have some estimates, run the numbers through a mortgage payment versus rent payment calculator to help you decide which option makes the most sense given your current financial outlook.
Calculate how much you will need to save.
Whether your estimates from the previous step look promising or they indicate you may need to put off purchasing a home for a few years, the sooner you start saving toward your goal, the better. But, first, you need to know what you are aiming for.
When calculating how much money you need to save before you are ready to buy, consider all the expenses associated with the home purchase and the costs of moving into it. These include:
- Down payment
- Closing costs
- Home inspection
- Repairs
- Moving costs
- Furnishings
- Utilities
Once you have a figure, divide it by the length of time between now and when you plan to purchase so you can set monthly savings goals.
Increase your credit score.
Your credit score will play a significant role in the terms of your mortgage—or if you are approved for a loan at all.
Although you might not have a ton of established credit yet, there are a few ways to ensure your credit score is as high as possible:
- Pay your bills on time.
- Stay under your credit limit.
- Minimize your open lines of credit (including “same-as-cash” offers).
Your goal is to demonstrate to potential lenders that you manage debt well and are unlikely to default on your home loan.
Reduce your debt.
As mentioned earlier, your debt-to-income ratio (DTI) is a big factor in whether or not your mortgage application is approved. This metric lets the lender see whether you are financially able to assume more debt based on the amount you are currently carrying.
To improve your DTI, pay down as much debt as you can, close any unused lines of credit, and don’t apply for any additional credit before submitting your mortgage application.
Note: The lender will pull your credit history multiple times between application and closing, so it’s important to protect your credit score for the duration.
Understand your mortgage options.
Once your finances are in order, it’s time to start researching your mortgage options to find the best fit for your circumstances.
There are many different types of mortgages, including:
- Conventional loans
- Federal Housing Administration (FHA) loans
- Veterans Affairs (VA) loans
- Adjustable rate mortgage (ARM) loans
Each type of mortgage has its own requirements and terms, so we recommend speaking with an experienced mortgage lender to fully understand the pros and cons of each type.
Find the right lender.
Where you get your mortgage matters, as different lenders have different requirements, benefits, and loan offerings.
Due diligence is key when selecting a lender. Your home is one of the biggest investments you will ever make, and where you source the loan can make a huge difference in how much you pay in fees and interest over the life of that loan.
There is no penalty for shopping around for the best rates and terms, so once you have narrowed down your list of potential mortgage lenders, apply for pre-approval with your top choice. When you receive your pre-approval letter, check with other lenders to see if they can offer you a better deal.
Most (if not all) of these application steps can be completed online, which helps keep things moving.
Shop for your new home.
With your pre-approval letter in hand, it’s time to start shopping for your new home! Working with a Realtor who specializes in the area where you are house hunting can streamline the process, as they will help you book showings and manage the contracting when you’re ready to make an offer.
The availability of digital tools makes home buying even easier, providing access to online property searches, virtual open houses, and e-closing options.
Work with a Specialist Who Understands Gen Z Challenges
Gen Zers have additional obstacles to overcome on the path to homeownership, including a challenging housing market, high inflation, and excessive student loan debt. The FFB Mortgage Lenders team understands these challenges and can offer guidance and insight to help you navigate them.
Check out our First-Time Homebuyer’s Checklist to get fast answers to the questions we hear most often from younger home buyers, or reach out to our specialists and let’s talk through your specific needs.
The content on this site is intended for informational purposes only and should not be considered accounting, legal, tax, or financial advice. First Federal Bank recommends that customers conduct their own research and consult with professional legal and financial advisors before making any financial decisions. Links to third-party websites may be provided for your convenience; however, First Federal Bank does not guarantee the reliability, accuracy, or safety of the information, products, or services offered on these external sites. We are not liable for any damages resulting from the use of these links, and we do not investigate, verify, or endorse the content or opinions expressed on any third-party sites.
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