Movers or Shakers?
The Millennial Generation Cautiously Enters Frederick County's Housing Market
When Frederick native Jessica Myers decided to move back into her childhood home at age 27, she knew she might be stereotyped as just another member of the Millennial generation mooching off her parents. But she didn’t care. She had a plan.
After accepting a teaching position at Lincoln Elementary School near Downtown Frederick, Myers decided it was time to not only return to her roots in Frederick County, but to put down some new ones by buying her own home. “I just felt like it was kind of the next step,” says Myers. “I knew that I wanted to stay here in Frederick and I really love the school that I teach in now and I just think Frederick’s a great place.”
By living rent-free with her parents for a little more than a year, Myers was able to shore up funds for what she thought would be a respectable down payment on a house. Then, she faced the daunting task of navigating the intimidating waters of the housing market. “I was nervous,” says Myers. “I really didn’t know what I was doing.”
Myers’ anxiety is certainly commonplace among first-time homebuyers in general, but real estate professionals say it’s especially prevalent among Millennials in today’s market.
“We can get them into homes with mortgage payments that are in many cases lower than rents, but they still are reluctant,” says Bill McHugh, a mortgage lender with Prime Lending in Frederick.
“I think it’s that 30-year commitment. In the back of their minds there’s still a little bit of hesitancy about what the future may hold.”
Buying a house is vastly different for today’s 20- and 30-somethings than it was for their parents, many of whom could get into the home-buying game with very little or no money down and less-than-stellar credit. Continuing concerns over the health of the economy and the lingering effects of the housing market crash have created a culture of gun-shy prospective homebuyers. Yet, according to the 2012 National Association of Realtors’ Profile of Home Buyers and Sellers, the median age of first-time buyers has remained relatively consistent at 31, meaning millennials are still maintaining the dream of homeownership, but are willing to put in the work and wait until the time is right to pull the trigger.
Doing Their Homework
Before searching for their first home, 25-year-old Amy Allison and her boyfriend, 23-year-old Michael Wilhelm, decided to take a class offered by the Frederick Community Action Agency (FCAA). The free, five-hour course is offered once a month for prospective homebuyers, many of whom are on the younger side. “Buying a house is not a difficult process. It happens all the time. But if you’ve never done it before, it can be really confusing,” says Joe Baldi, a housing counselor with the FCAA.
During the class, potential homeowners can learn about different loan programs available through the city, county, state or federal government and get practical advice to help smooth the path to ownership. Baldi stresses the importance of hammering out a spending plan to determine how much money is available for a mortgage payment and getting pre-qualified for a loan through a mortgage lender before perusing properties. “Everyone should first go talk to a lender about what they really qualify for,” says Baldi. “If you don’t do anything else, at least do that.”
Allison says the FCAA class was extremely helpful for her and Wilhelm in pinpointing the type of home on which they should be focusing. “I feel like we’re not going to enter a house and become house poor,” Allison says. “We know our limits and by setting those limits, it keeps us from looking at a house we can’t afford.”
Many Realtors in Frederick County say working with clients in the Millennial age range keeps them on their toes. “Millennials are prepared and cautious but in a good way,” says Jennifer Grove, a Realtor who has worked for Bach and Associates in Frederick for the last 12 years. “I think they’re very smart and tech-savvy. They’re doing all kinds of research before they even talk to me.”
Diane Derr, an associate broker for ReMax Results in Frederick, agrees: “This age group relies heavily on websites to search for homes,” says Derr. “They generally know what they want, where they want to geographically be located, and don’t want to look at 50 houses. They want to have the research completed before spending time looking at the physical property.”
While endless websites, online mortgage calculators and even television shows like House Hunters or Property Virgins can help novices feel like experts before they even set foot through a front door, real estate professionals advise consulting face-to-face with both a lender and a Realtor familiar with the local market.
“I prefer to meet with the Millennial, especially the first time they are in the market, for a buyer consultation,” says Derr, who has been in real estate for more than 20 years. “We will discuss their expectations in the home they are looking for in their minds. Often I need to educate them on the reality of their expectations. We discuss their ‘must haves and ‘want to have’ lists. Our goal is to find the property that offers all their ‘must haves’ and hopefully get a few from the ‘want to have’ list, as well, that is within their financial means.”
Location, Location, Location
Once completing the preliminary legwork necessary to start searching for a place she could call home, Myers says she was immediately averse to the “cookie-cutter townhouse” that seems to be the type of starter house many young professionals choose. Instead, she set her sights on locating as close to Downtown Frederick as possible.
“The restaurants are amazing, I have some friends who live downtown, I work out downtown, I also like to run in the park and around downtown,” says Myers. “I really didn’t have a reason to not be downtown.”
Likewise, Allison, who is originally from Anne Arundel County but now works as a teacher at Urbana Middle School, describes herself as “anti-commuter.”“The time spent commuting isn’t worth it to me,” she says. “Living downtown, you have more amenities, there’s easy access to everything. There are parks and restaurants and it’s just where I would like to live.”
The specific style of a home doesn’t seem to matter as much to Millennials in Frederick County as location and “things like off-street parking, charm, low maintenance and affordability,” says Derr.
However, because the proximity to Downtown Frederick is so popular with young homebuyers, the small number of available properties makes them hot commodities. “There are just not many homes on the market as a whole right now, especially in the first-time homebuyer bracket, so they do have to be patient and wait for the right home or know they can make improvements to a home and make it what they want it to be.” says Grove.
Allison and Wilhelm don’t expect to find their “forever home” on their current budget, but something that would prove to be a good investment in the next three to five years—“not a ‘handyman special’ but a little bit of a fixer-upper where we could put some sweat equity into it,” says Allison.
The Low-Down on Down Payments
Because of the tight market, the pressure is on for a homebuyer to not only be pre-approved for a loan, but to be prepared to make a quick offer on a property if they’re really interested. “In Frederick in many cases, especially in the first-time homebuyer range, we’re starting to see multiple offers,” says McHugh. “Buyers need to be ready and they definitely need to be pre-approved.”
McHugh says when dealing with younger clients, he often comes across misconceptions about how much money it really takes to purchase a home. “There are still people out there who think you have to be able to put 20 percent down but you don’t,” says McHugh. “You can still get into a home for a small down payment.”
Still, McHugh warns, clean credit is key in today’s market. While many lenders are loosening up restrictions, a lower credit score or unstable job history will make them balk at approving a loan. “For those that have challenged credit, it’s a process,” says McHugh.
“Many prospective homeowners may have to work on their credit for a year or two but we sit down with them and say, ‘This is a roadmap to help you succeed.’”
For those who have strong credit, a solid employment history and proof of steady income, McHugh points to several loan programs that can be attractive options for first-time buyers without a ton of cash on-hand:
VA: Home loans backed by the U.S. Department of Veterans Affairs are often available for no money down and apply to veterans, current members of the military or surviving spouses. VA Home Loans are provided by private lenders, such as banks and mortgage companies, but because the VA guarantees a portion of the loan, lenders are able to offer more favorable terms.
USDA: The U.S. Department of Agriculture offers a loan program intended to promote properties in rural areas of the country in which qualifying applicants can also get into a house with little to no down payment if they meet specific income limits. McHugh admits, however, fewer and fewer properties in Frederick County meet the qualifications for rural properties set by the USDA.
FHA: Loans provided by the Federal Housing Administration used to be the typical route younger, first-time homebuyers would take when borrowing money. FHA loans can be secured for as little as 3.5 percent down and prospective homebuyers have the option of accepting a cash gift to meet that minimum down payment. FHA loans have become less popular since last year, McHugh says, when the administration raised the cost of private mortgage insurance (PMI) required to secure this type of loan and made it more difficult for homeowners to opt out of the PMI once they have established more equity in their houses.
Conventional: The financing option that is becoming more attractive with Millennials, McHugh finds, is simply going with a conventional loan—one provided by a private lender without any backing from the federal government. These types of loans require a down payment of at least 5 percent of a home’s value. “With good credit, conventional loans can end up being much, much cheaper,” says McHugh.
Careful and Cautious
Despite the options available for Millennial homebuyers and the fact that interest rates are currently available at historically low levels, McHugh says it’s often still tough to convince a young client to take the plunge. “I respect the caution,” says McHugh. “I understand their reluctance and their hesitance. We don’t try to push, just educate.”
Aside from the financial obligations, Baldi tells clients he works with through the FCAA that not everyone is cut out to be a homeowner. “It is an awful lot of responsibility,” he says.“Once you buy that house, you’re the landlord, you’re it. If you have a problem, you have to take care of it. You have to budget for the fact that you’re going to have issues, things are going to happen.”
But for Jessica Myers, the months of living at home with Mom and Dad, the stress of securing a loan and the painstaking process of looking at close to 20 properties, all became worth it when she turned the key for the first time in the front door of the three-bedroom, brick rancher with hardwood floors and wood trim located just blocks from downtown and realized it was all hers.
“It’s like a ‘real-person’ house,” says Myers, who closed on the house in September. “I never thought I could afford something like this but now… I feel settled.”