- While Millennials were one of the most stereotyped generations, today they are the largest home-buying demographic.
- Millennials are an important niche for lenders because they are at the top of their career, inheriting wealth, and buying overpriced properties.
- Inheriting property creates a lot of complications for both successors and the mortgage originators who have to guide them through uncommon and complex processes, as well as document requirements.
- Realkey’s automation tools can help MLOs and loan processors better understand complicated products as well as tap into the unique and lucrative Millennial market.
Previously, Millennials were one of the most stereotyped and made-fun generations. They were considered entitled, self-absorbed, as well as obsessed with social media and overpriced avocado toast. While it’s easy to be distracted by silly memes, savvy MLOs are beginning to recognize that Millennials are becoming a powerful demographic that’s increasing their wealth, dominating the housing market, and beginning to inherit real estate from their families. This lucrative demographic does come with a price for lenders, who must adapt to their borrowing process, their needs, and have a deep understanding of how to navigate their complicated new wealth and inheritance dynamics to boost business.
Who Are Millennials
Millennials, sometimes called Gen Y, are individuals born between 1981 and 1996, putting them at 26-41 years old. They are the largest living generation accounting for over ⅕ of the population with approximately 80 million people. Majority of them are children of Baby Boomers and are parents to Generation Alpha. Millennials are the first generation to grow up in the internet age and are heavily dependent on the internet, smartphones, and social media. They have been coined as the Head Down Generation for spending so much time staring down at their smartphone.
Unfortunately, Millennials are the unluckiest generation in US history because they experienced 3 economic downturns: the Dot-Com Bubble implosion, the 2008 Great Recession, and the Coronavirus pandemic. The 2008 crisis had an especially lasting impact. It erased a huge chunk of the labor market for newly-graduated Millennials strapped with huge student debt, as well as for older Millennials that were already in the labor market but lost their job. This drastically depleted their savings, increased debt, and forced many to postpone getting married, having children, and buying houses. Although Millennials were able to recuperate jobs 10 years later, they lost 13% of their earnings. Today, Millennials make up 35% of the US workforce, with that number expected to grow to 50% by 2025.
Why Millennials Matter Today
Although historically Millennials got the short end of the stick, even with the current pandemic, they are in a different career and wealth position for the following reasons:
Careers: The onset of the pandemic didn’t disrupt the jobs for Millennials compared to older generations. Being the original tech babies, they quickly adapted to working from home. Many are also approaching the peak of their careers and earning potential. They are transitioning to higher-paying roles, starting their own businesses and consulting services.
Inheritance: Majority of Millennials are children of Baby Boomers, who since 2001 have owned the most real estate of any generation. Boomers are also 10 times wealthier than their children, holding 53.2% of wealth in America compared to 4.6% that of Millennials. Although they are the least wealthy demographic, their Boomer parents are at the age where they are passing away, leaving financial and real estate inheritance.
Real Estate: While the 2008 crisis disabled Millennials from purchasing property, the current pandemic has had a completely opposite outcome. Since 2014, they have been the largest share of homebuyers, making up 43% in 2021, increasing 16% from the previous year. Millennials are also buying larger and more expensive homes compared to older generations because they need extra space to create home offices and to start a family. The pandemic caused a new baby boom, changing the housing needs due to growing families. Many Millennials are also moving-in their aging parents to take care of them or to get help with the kids. Millennials, who previously were more interested in condos in metropolitan cities, are now opting for larger homes in the suburbs, away from expensive and crowded cities. Many prefer a quieter life with less crime and traffic, better public schools, but still close enough to the action.
What This Means For Lenders
Millennials are nothing like the older generation. They are no longer overpaying for an avocado toast brunch, but instead for real estate. Boomers, due to lack of technology, depended on face-to-face relationships and phone communication, as well as manual and time-consuming processes. Their loan processes were more tedious, error-prone, and took longer to close. As the generation decreases, this way of doing business is becoming obsolete. Millennials depend on apps and technology for everything, including taking out a home loan. They are not interested in physically meeting with a lender, working with paper documents, and having to come to the office to sign paperwork. It’s a culture that values technology, convenience, efficiency, and transparency.
The Boomer demographic, which owns the majority of the real estate market, is “shrinking” and Millennials are inheriting their wealth and properties. While their assets are increasing, so are the headaches of figuring out how to manage the legalities of inherited properties, what to do with them, and how that might impact taking out a loan.
Lenders that want to tap into the Millennial demographic must educate themselves and become experts on the complexities of inheritance dynamics to better guide these borrowers through the loan process. As more Millennials are inheriting their Boomer parents’ wealth and properties, they must make difficult decisions of what to do with them. For many, inheriting a home comes with a lot of complications and coming into possession with a will, deed, or trust all have different protocols as well as legal and tax implications.
Homes are not always inherited in ideal circumstances. If the bequeathed home hasn’t been paid off, the recipients must figure out if they inherited the actual loan or have to refinance. This requires a lot of “unusual” documentation as well as court certificates. Some successors do not qualify for a new loan, and must prove rental income or occupancy to improve their DTI (Debt-to-Income) ratios, which is not always easy. Knowing how to deal with title changes can also alleviate a lot of bureaucracy and red tape.
Flipping, modernizing, or renting an inherited property creates a lot of challenges, such as complex loan products, guidelines, and documentation that many MLOs and processors are unfamiliar with. The decisions and legal issues can be overwhelming for the inheritors, and they oftentimes look to lenders to educate and guide them through the process.
RealKey Can Help
RealKey’s loan automation technology can help MLOs and processing teams become experts in most complex and uncommon loans by helping understand difficult products and their requirements. This, inturn, helps lenders and brokers communicate better, qualify borrowers for a more diversified portfolio of loan products, and clearly explain their requirements.
Automation technology provides a lot of value for borrowers as well, making it easier to provide a more positive experience for them while navigating complicated loans. It provides clear instructions, transparency, and an overall understanding of the process and requirements by giving a 360 degree view of each transaction from start to finish. It not only maps out the entire process, but helps understand the “why” behind every step. From 1031 Exchanges to Rehab & Construction loans, RealKey can automate any product.
RealKey’s automation tools can also help MLOs and closing teams better understand many
RealKey is an innovative provider of digital mortgage technologies that fills gaps (LOSs, POSs, and AUSs) in order to streamline the mortgage process. The RealKey platform provides automated and intelligent collection of documents, review of data, and secure communications among all parties involved. These combined capabilities shorten the loan processing cycle by roughly 50%, giving MLOs time to close more complicated loans. RealKey’s software works seamlessly with existing point of sale and loan origination systems to bring an end-to-end, fully digital mortgage processing experience to lenders, brokers and their clients.
Contact us today for a demo, and learn how RealKey can help you automate even the most difficult loans.