couple looking at buying a house

Alternative Housing Options for Millennials

The crippling student debt, high cost of homeownership, and stagnant income are why many millennials cannot afford a house. In a 2019 research by Apartment List, about 70 percent struggled to secure their own houses.

In reality, they can explore other ways to secure housing:

1. USDA Loans

What are USDA loans? A USDA loan is a government-backed loan for eligible buyers and renters. It is also known as a rural development loan.

It offers many benefits that include

  • 100 percent financing—this means that properties usually do not require any down payment. It also doesn’t have mortgage insurance.
  • Low interest rates—the current interest rates on these loans are usually 3 points above the treasury rates, which vary from day to day. This will be fixed over the life of the loan. Since no mortgage insurance is involved, home buyers will see their payments toward principal and interest payments.
  • Down payment assistance—depending on the county and income level, there may be a 20 to 95 percent grant to help with the down payment.
  • Low closing costs—these loans have low closing costs attached to them when purchasing a home and renting one. The USDA loan servicer may already cover items such as appraisals, title searches, and attorney fees.
  • Property improvements—as long as improvements are according to local building codes, they will not affect the property’s value or depreciation benefits. The improvements must also remain on the property at least three years after it closes out to qualify for 100 percent financing again.

house keys

2. Coop Housing

What is coop housing? It usually falls under two categories: tenant-owned and resident-owned. The former is owned by a co-op corporation, which leases the units to its members. In the latter case, the home belongs to each resident.

Co-ops charge “residency fees” that go toward maintaining their properties. These costs vary from one house to another but can range anywhere between $400 and $900 monthly—or more. Some even require a percentage of any profits one earns on the home while living in it, as well as the return of any equity after selling.

A lot of people also think they’re getting huge discounts because they’re buying into a co-op. The truth is that, while much cheaper than buying a home outright, it’s still not free. The homeowner still needs to cover the cost of buying into the co-op and will have ongoing fees during your time as a resident. This can add up quite a bit depending on how long one plans on staying in a particular unit.

On the upside, it’s much easier to get approved for these homes than others. In some cases, the homebuyer only needs to pass a credit check and provide proof of employment. Because each co-op has an overarching set of bylaws that set out how things work within its walls, the laws and regulations can also cover the investments. That means fewer legal fees down the road when disputes arise between residents or with external parties, like contractors working on repairs.

Another bonus is that co-ops limit the amount owners can charge on their units. For example, some condo boards have reported charging as much as $4,500 in condo fees each month! Many co-op homes are also located near public transportation: streetcar lines, light rail stops, bus routes, and the like.

3. Tiny Houses

A tiny house is a home that’s smaller than the average new American single-family home. It’s about 500 square feet or less. Tiny houses can be built on trailers and parked in backyards.

They can be stuck in the middle of urban sprawl (though this might get a homebuyer into some legal trouble). But most tiny houses these days are put on wheels and moved whenever needed, which means proponents say it qualifies as an RV.

Regulations for RVs are much looser than those for traditional housing. Owners don’t need any building permits or licenses to design their trailer homes. They have to follow certain federal safety and zoning codes.

Tiny houses are appealing to a lot of people, especially millennials:

  • It’s cheaper to own one—for the same amount of money as a small apartment, one gets a full bedroom and kitchen, with the comforts of home.
  • A tiny house is green—unlike RV parks, which take up land and energy to run, tiny homes can be parked almost anywhere on any patch of public or private land.
  • The house is movable—if the homebuyer doesn’t like their neighbor or the town has too many restrictions (like permitting self-built structures), they can move on.

Homeownership is challenging these days, but this doesn’t mean that millennials don’t have options. They can approach lenders for alternative loans, consider building a tiny house, or stay in a coop house, all these to lessen monthly housing fees.

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