Most millennials will fund their down payment with cash savings, according to NewHomeSource's annual survey of this key demographic.
“It is a common misconception that homeowners need a 20% down payment,” says Ali Wolf, chief economist at NewHomeSource. “That is simply not true. There are loan options available that offer mortgages with less than a 5% down payment. Every little bit counts when you’re trying to save for a housing down payment. Ask yourself, do I really need that Starbucks coffee or this impulse buy at Target? Small changes can make a big financial difference.”
Here’s how millennials are saving for their new homes.
Cash
Millennials are paying their down payments in cash primarily to avoid high mortgage rates, reduce long-term debt, and stay competitive in a tight housing market. Many have saved aggressively by delaying homeownership, leveraging side hustles, or cashing out investments like stocks and cryptocurrency. Others benefit from family financial support or inheritances, allowing them to bypass private mortgage insurance and secure better loan terms. With rising home prices and economic uncertainty, those who can afford it see a large cash payment as a way to gain financial stability and homeownership security.
Sale of an existing home
Millennials who are purchasing homes with down payments from the sale of an existing home are likely repeat buyers who have built equity in their first property. Unlike first-time buyers who rely on savings, gifts, or loans, these homeowners can leverage the increased value of their previous property—especially in a rising housing market—to fund a larger down payment on a new home. This strategy helps them afford more expensive properties, secure better mortgage rates, and reduce monthly payments. Given high housing costs and economic pressures, using home equity is a practical way for millennials to move up in the real estate market.
Help from a relative
Millennials are increasingly relying on financial help from relatives for their down payments due to rising home prices, stagnant wages, and high costs of living. Many face significant barriers to saving, such as student loan debt and rent expenses, making it difficult to accumulate the necessary funds on their own. Parents or other family members who have benefited from past real estate appreciation or stable financial positions often step in to provide gifts or loans to help younger buyers enter the housing market. This assistance allows millennials to afford a home sooner, secure better mortgage terms, and avoid the need for private mortgage insurance (PMI) by reaching the standard 20% down payment threshold.
Proceeds from investments
Millennials who use proceeds from investments to pay for their down payments are often leveraging stocks, cryptocurrency, or other assets they have accumulated over time. With rising home prices making it difficult to save through traditional means, many turn to their investment portfolios to bridge the gap. Some may have benefited from market growth, employer stock options, or early investments in high-performing assets, allowing them to cash out for a significant return. This strategy enables them to enter the housing market without relying solely on savings or family support, though it comes with risks such as potential tax liabilities and market volatility impacting the value of their assets.
Financing company
Millennials are turning to financing companies for help with down payments due to high home prices and challenges in saving large sums upfront. These companies offer alternative financing solutions, such as shared equity agreements, down payment assistance loans, or bridge financing, allowing buyers to secure a home without waiting years to save. This approach is particularly attractive for those with strong incomes but limited savings or who want to keep cash reserves for other expenses. While these options can make homeownership more accessible, they often come with trade-offs, such as shared appreciation agreements or higher long-term costs, which buyers must carefully consider.
