Millennials are more in debt and less knowledgeable on home equity

Millennials are spending the highest percentage of their monthly income on homeownership costs compared to other generations, a survey from Hometap found. They are at the greatest risk of becoming house-rich and cash-poor, the company said, referring to a term normally used to refer to senior citizens and their need to release equity through a reverse mortgage.

Of the 1000 homeowners surveyed between ages 25 and 75 in August, 77% carry at least some form of debt or financial liability, with millennials (83%) more likely to owe money than baby boomers (72%). More than a quarter of those surveyed plan to maintain a tighter budget until their debts are paid.

A lack of knowledge exists among millennials regarding their home equity position, as 53% do not know how much they have in their homes and 55% do not know how to calculate it, the Hometap survey found. Furthermore, 59% do not view their home as an asset they can use to obtain needed cash.

But only 31% of baby boomers do not know how much equity they have, and 39% don't know how to calculate it.

"Americans are more invested than ever in their homes, but still tend to view homeownership as a source of debt rather than equity," said Jonathan MacKinnon, Hometap's vice president of project strategy and business development. "These findings point to a broad lack of awareness of how to use home equity to unlock new opportunities without the burden of debt when their finances are already stretched."

Meanwhile, more than half of the respondents said they spent at least 16% of their monthly income for their mortgage payment. But one-in-three millennials spent more than 26% of their income on mortgage costs.

About 46% of homeowners spend an additional 6 to 15% of their monthly income on other related costs beyond their mortgage payment. Another 16% spend an even greater percentage of income. Just under four-in-10 declared they were "very prepared" for these costs going into homeownership.

In a separate survey of 1,000 buyers by home insurance company Hippo, more than two-thirds of respondents, 68%, want to improve their understanding of home maintenance and repairs, including cadence and cost. Over three-quarters of the respondents had to deal with a problem that cropped up suddenly. More than half of those said the repair cost between $1,000 and $5,000 while slightly over one-third said the repair was over $5,000 and 13% had a repair under $1,000.

"Homeownership is an incredible first step into a new life chapter, but first-time buyers often don't take into consideration what's beyond the paperwork and moving process," Rick McCathron, Hippo's president, said in a press release.

With 87% of Hippo survey respondents saying the pandemic accelerated their decision to purchase a home, 67% overall paid over the asking price. Because of the intense competition for a small amount of inventory, these buyers fronted more cash for their purchases, with 36% making a down payment greater than the standard 20%. Married respondents were 31% more likely than single individuals to put more upfront cash into the deal, the Hippo survey found.

But first-time buyers were forward-looking in one way that differed from existing homeowners. They were 318% more likely than the latter group to say that headlines about climate change factored into their property purchase.