This article was originally published on Yahoo Money.
Many millennial renters won’t be homeowners anytime soon – even if they want to be.
Among young adult renters who want to buy a home, 7 in 10 say they simply cannot afford one, according to a recent study by Apartment List, an online real estate company. The analysis was based on responses from over 10,000 millennial renters across America.
Renters said poor credit and the burden of future monthly mortgage payments were major obstacles. But the most commonly cited challenge was saving for a down payment, with 60% of young adult renters saying this is what has kept them from buying a home.
“Millennials today will need a 20% larger down payment than baby boomers,” said Dean Baker, chief economist at the Center for Economic and Policy Research. “Housing prices are higher [even] when adjusted for inflation.”
The biggest obstacle
Almost 1 in 2 millennial renters have zero dollars saved for a down payment, according to the study. Just 1 in 8 have socked away more than $10,000.
Their future prospects don’t look much better, according to an analysis Apartment List ran.
Only 1 in 8 millennial renters will be able to afford a 20% down payment on a modest condo within the next five years. That rises to 1 in 4 for a 10% down payment and just under 2 in 5 for a 5% down payment, the analysis found.
Still, that leaves more than 3 in 5 renters who can’t afford to contribute just 5% to their home purchase.
Experts say rising home prices makes it difficult to squirrel away enough to buy a house versus previous years.
“We’ve seen millennials purchasing homes that average $175,000 in the past,” Jeremy Sopko, chief executive officer of Nations Lending, a mortgage lender, said. “This year, we’re seeing that over $205,000 on average.”
Challenge to saving
As student loan debt increases – now reaching $1.5 trillion – millennials’ opportunities for home-buying seem to dwindle. Roughly 20% of the decline in the homeownership rate among young adults can be attributed to student debt, according to a recent study from the Federal Reserve.
“Millennials came into the workforce during a tough time. Many decided to go back to school because of the recession,” said Mark Zandi, chief economist at Moody’s Analytics. “At the same time, higher education [costs] soared because states cut back on funding.”
Almost 6 in 10 with college degrees and no student debt have put money away for a down payment, versus 5 in 10 renters with education loans.
The amounts they’ve been able to sock away is even more striking. Renters with student loans have saved $8,200 on average for a down payment – less than half of the $18,914 their debt-free counterparts squirreled away.
Overall, those without debt are able to save $100 a month more than those with loans, the analysis found.
“I think millennials are graduating college in debt and for them to buy a home is probably one of the last things on their mind,” said Jeremy Sopko, chief executive officer at mortgage lender Nations Lending.
Mortgages for small down payments
There are options. You don’t need 10% – or even 20% – to buy your first house.
“I think the first mistake people make is that they [think they] have to put down 20 percent to get a good loan,” said Sopko.
The median down payment for a first-time homebuyer this year was 6%, according to the National Association of Realtors. On a median-priced entry-level home of $215,000, that’s $12,900.
But there are ways to purchase a home with even less.
Mortgages backed by Fannie Mae and Freddie Mac offer loans with down payments as low as 3%. The Federal Housing Administration secures home loans that require only 3.5% down.
These often come with higher interest rates and – in some cases – you may need to pay a monthly premium for mortgage insurance. That will result in heftier monthly mortgage payments, but you’ll still own a house.
Dhara is a writer for Yahoo Finance. Follow her on Twitter @dsinghx.