- About 80% of millennials are willing to make an offer above a home's asking price, according to Clever's home website The Real Estate Witch.
- Nearly half, 46%, of millennials said they expect to max out their budgets when buying a home, data shows.
- High home prices right now "are the result of a variety of market factors."
Fierce competition and limited inventory have made some homes hard to come by, so it's no wonder younger people in the market may feel pressure to buy quickly and spend more.
About 80% of millennials are willing to make an offer above a home's asking price, according to a recent survey of 1,000 adults from Clever's home website The Real Estate Witch. And 1 in 6 of respondents would even go $100,000 or more over the listing price to land their dream home.
Nearly half, 46%, of millennials said they expect to max out their budgets when buying a home, according to the survey. One-third plan to purchase a home that costs more than the national median of $405,000, which if they went with the traditional 20% down payment, works out to a hefty $81,000 or more down.
And if the home they're buying appraises for less than they have offered to pay — which isn't unusual for offers over asking price — then they will likely need even more cash down to cover the difference.
Here's what you need to know to keep your home costs in check in a hot market.
Homeownership can be a tool to help build wealth, but overextending yourself can lead to financial difficulties or even make you "house poor," meaning all your free money goes toward covering your mortgage and other home expenses. That means you may struggle to pay other bills.
A good way to keep home costs reasonable is knowing how much you can afford to start: "Determine how much house you can afford in order to set boundaries around your home shopping," Bankrate chief analyst Greg McBride previously told Grow. "And focus on building your savings and paying down debt so you can put your best foot forward in homeownership."
Dan Duval, a principal broker in Boston, suggests sticking with the 28/36 rule common among mortgage lenders. It stipulates that no more than 28% of your monthly gross income be dedicated to housing and no more than 36% go toward total debts, including those housing expenses and other loans.
A large chunk, 82%, of younger buyers in The Real Estate Witch survey have more than $10,000 in savings, a 25% increase from last year. Still, just a third say they plan to put down less than 20% for a down payment.
That's not unusual: In the third quarter of 2021, the median down payment on a house was about 8% of the purchase price, according to data from Attom Data Solutions. Some lenders may let you put less down if you get private mortgage insurance, which will add 0.5% to 1% to the cost of the mortgage each year. And there can be other trade-offs, in the form of a slightly higher mortgage rate.
Video by Richard Washington
Home seekers meeting certain criteria can also use federally backed mortgage programs to help cut costs, with some loans requiring as little as 3.5%, or even 0%, down.
If buying right now seems like a reach, it's OK to take time financially prepare, says Duval. "Whether or not a buyer should snap up a property now depends on a combination of factors," he says, but "the best way to save on a mortgage is to be in excellent financial condition. If a buyer has strong earnings, great credit, and cash reserves," they may well be able to secure their home.
More from Grow:
- Americans flocked to these states in 2021, and the No. 1 destination wasn't Florida or Texas
- The unexpected cost 85% of new homeowners face, and how much they have to pay
- The top 10 U.S. metro areas where homebuyers can save for a down payment fastest