Millennials and Gen Zs make up the largest cohort of potential homebuyers today, the majority of which are first-time buyers bullish to get a foot on the property ladder. As market volume dips and pent-up demand builds, 61% of millennials and Gen Zs who intend to buy a home plan to apply for a mortgage this year. 

For years, the dominant market narrative defining these generations has been digital-first experiences and poor financial habits. New data released in Maxwell’s 1H 2022 Millennial & Gen Z Borrower Sentiment Report, however, goes beyond simplistic stereotypes by digging into the needs, habits and preferences of 1,000 respondents planning to apply for a mortgage over the next few years.

As mortgage rates rise, inventory remains low and digital trends accelerate, navigating the changing borrower landscape requires tailored strategies. Loan officers must understand what modern millennial and Gen Z homebuyers want from their lenders. For mortgage professionals looking to buoy their loan volume through the rest of the year and beyond, understanding the motivations, behaviors and the barriers to entry for these borrowers will only become more vital for success.

Creative paths to homeownership in a challenging market

As inflation begins to bite, the rising cost of rent is driving more millennials and Gen Zs to apply for mortgages. While over a quarter of those surveyed still live with their parents, 45% are currently renting and over half (51%) want to buy a home because the cost of rent is too high. This is particularly true for city dwellers who have experienced significant rental price increases over the past decade.

Despite concerns that their down payment savings may not be up to traditional standards, millennial and Gen Z borrowers are poised for homeownership. With house prices and competition amongst homebuyers expected to increase even further this year, 41% plan to apply for a mortgage on their own and almost 10% with friends. While traditionally borrowers tend to wait until they have a 20% down payment, this generation thinks differently. Today, 78% would apply for a loan with less than the traditional 20% down payment, while more than half (55%) do plan to put down at least 10%.

Barriers to Home Buying

Many millennial and Gen Z future homebuyers are concerned about the effects of personal finance issues like having insufficient savings, increasing debt and low credit when applying for a loan. Almost half (45%) think the mortgage process is overly expensive, and a quarter don’t feel confident about securing a mortgage due to their financial hurdles. In some cases, these prospective borrowers have the personal experience to back up that concern.

Federal Reserve data indicates that as a whole, millennials carry over a trillion dollars in debt, with credit card debt making up the greatest portion. The report found that while the majority (75%) feel confident about eventually securing a mortgage, a large percentage of millennial and Gen Z future homebuyers see an insufficient down payment or closing funds (46%), their high debt-to-income ratio (45%) and bad or no credit (38%) as barriers to approval. Only 13% of respondents have scores that would be considered exceptional (>799), while 30% have fair or poor credit scores (<670).

What borrowers seek in a lender

A lack of mortgage process knowledge may impact confidence levels, adding to financial concerns. More than a quarter (27%) feel that they have “very little” or “no” knowledge about the mortgage process. As such, personal support is important to this demographic. In fact, over 78% of respondents indicate that personalized service is important to them.

Loan officers must take time to build that confidence through value-add resources, education and support. By walking them through the process step by step, lenders can build trust with their customers, grow a powerful reputation, earn repeat and referral business and increase access to homeownership in their communities.

While large and online lenders continue to hold significant market share, when it comes to choosing a lender, the majority of millennial and Gen Z borrowers intend to shop around for the right fit. This generation does not seem overly impressed by big names, preferring instead to research the lending option best suited to their personal needs. More than half of all respondents plan to do their own initial research online, with almost three out of five planning to compare posted rates, 50% intending to read customer reviews, and 46% aiming to research their options on a lender’s website. 

When asked about their plans to secure a future mortgage, 28% believe they’ll use a local community lender, significantly more than the 15% intending to use an online lender. Lenders who can provide both an in-person and an online mortgage experience will gain a significant competitive advantage. By creating an enhanced online presence, local lenders can offer expertise via digital content, marketing and outreach, which will be crucial to positioning them as a helpful thought leader in the space.

Conclusion

In the current market, where total loan production expense is at an all-time high and volumes continue to fall, renormalizing to historical levels, it can be easy to lose sight of the strong home-buying potential of millennials and Gen Zs. Lenders need to capture borrower business wherever possible, and local lenders are well-positioned to guide this demographic to homeownership by launching new, more diverse loan products and channels that lower the barrier to entry for first-time home buyers. By leaning into hyper-personalized, supportive service enhanced by digital capabilities, these lenders can earn the business of the largest home-buying cohorts of today (and tomorrow).
Read the full report and learn how Maxwell’s comprehensive mortgage solutions can help lenders turn renters into homeowners at himaxwell.com.