Gen Z Is Making a Strong Entrance Into the Housing Market. Here's Where They Are Buying

by Kimberly Rotter | Published on Aug. 30, 2021

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A young couple smiling while talking to their realtor outside a home for sale.

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Gen Z is buying homes in cities with nice neighborhoods and strong economies.

Boomers are downsizing. Gen Xers are paying the kids' college tuition. Millennials are a force to be reckoned with. But a new generation is entering the housing market with gusto.

Better Mortgage knows that Gen Z is buying, and shared some interesting data with us.

Gen Z is entering the home-buying market

Gen Zers were born between 1997 and 2015. The oldest are turning 24 this year. That may seem young to buy a home, but Gen Zers are jumping in with both feet. Many millennials are happy renting, but most Gen Zers say they want to own.

Emanuel Santa-Donato, VP of Capital Markets and Lead Acquisition at Better Mortgage, told us that the number of Gen-Z applications at Better increased 57% from January to March 2021, and was up 124% compared to March 2020.

"We have seen an interesting increase in Gen-Z customers taking advantage of historically low interest rates and purchasing homes across the country," said Santa-Donato.

Top five cities where Gen Zers are buying

The top five cities for Gen Z (25 and under) purchasers between April 1, 2021 and June 29, 2021 were:

  1. Austin
  2. Houston
  3. Charlotte
  4. Philadelphia
  5. Atlanta

These choices make sense -- all are cities with great neighborhoods and growing economies.

How Gen Zers qualify for a mortgage

Santa-Donato says that credit score and debt-to-income ratio are the pillars of a mortgage application.

Here's what to focus on if buying a home is your goal:

Get your credit score ready

A higher credit score means more favorable rates. Your credit score helps lenders evaluate your ability to pay back your loans, based on your borrowing history. Even small differences in the mortgage interest rate can lead to significant savings over the life of your mortgage.

Though it's not as widely known, your credit score affects how much you pay for private mortgage insurance. PMI is required for most borrowers who make a down payment of less than 20%.

Get a free copy of your credit report and check it for errors. Some errors can affect your score. Errors can take weeks or even months to resolve with credit bureaus, so the sooner you report them, the better.

Then check your credit score. There are ways to do this for free:

  • Discover offers a free FICO® Score online to anyone, even if you don't have a Discover account.
  • You can get a free FICO® Score by signing up for Experian Boost.
  • Some banks and credit card issuers offer free FICO® Scores. Ask yours.
  • Get a free credit score online from any popular credit score website. This will usually be a VantageScore, however, which isn't always the same number as your FICO® Score.

If your credit score isn't where you want it to be, you can take steps to improve it. When you access your credit report online, the website usually shows you the factors pulling your score down. The biggest influencers are payment history and revolving debt balances.

Check your debt-to-income ratio (DTI)

"While credit scores are certainly important, another number, debt-to-income ratio, can play an even bigger role in your ability to get a mortgage," says Santa-Donato.

He says that a high DTI is the biggest reason mortgage applications get rejected.

Your DTI is the total of your monthly debt payments divided by your gross monthly income. The lower your DTI, the more financing options will be available to you.

Here are a few ideas for lowering your DTI:

  • If you have a car loan, pay it off before applying for your mortgage.
  • Pay off any credit card balances in full. A zero balance should not hurt your credit score.
  • Consider refinancing or consolidating current loans to reduce your monthly payments.
  • Consider adding a co-borrower with a low DTI to your mortgage loan (keep in mind that the co-borrower's credit score will also be a factor).
  • If you plan to use rental income to qualify for a mortgage, make sure you have lease agreements. Your lender might even be able to consider the income of a partner, parent, or roommate in your new home.

Gen Zers are getting into homeownership early

Gen Zers are already mastering the mortgage application process; they're in the housing market to stay.

Santa-Donato says three ingredients created the perfect climate for millions of first-time home buyers, including Gen Z:

  • Historically low mortgage rates. They aren't old enough to remember the 15% mortgage, but Gen Zers can see prices going up. It's natural that they would want to capitalize on the current low cost to borrow, and start building equity. Gen Zers may be more optimistic about future home values compared to their millennial counterparts, whose homeownership hesitancy may stem from the 2008 housing market implosion.
  • The pandemic. While historically low interest rates are fueling a portion of the housing demand, the pandemic is no small factor. Gen Zers increasingly embrace the notion of home ownership, and the value of placing an emphasis on home.
  • The need for more space. Compared to those of other generations, fewer Gen Zers had to share a room growing up. They like their space. For Gen Z, homeownership seems to be just a part of growing up.

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