When you hear the phrase, “The American Dream,” what picture comes to mind?

For a long time, the classic version included a white picket fence, 2.5 children, and of

course, a house.

The importance of home ownership is still embedded in American culture.

7 in 10 adults say they want to own their own home someday, and yet... actual ownership

has dropped to its lowest level since 1967.

The biggest culprit?

Those pesky millennials, with an 18% decrease since 2004.

If owning a house is still important, then are young people just being foolish?

Or are they reacting rationally to a changing economy?

In theory, owning a home still makes a lot of sense because it kills two financial birds

with one stone: It's a place to live, and a long-term investment.

Every time you make a mortgage payment or the value of your home increases, you're

saving money for your future self.

It's like a piggy bank you can sleep in!

But the world is changing in ways that make this scenario harder to pull off:

Younger people have more debt than previous generations, mainly thanks to student loans.

The average amount that a graduate owes has tripled in the last 25 years, which means

that many young people already have a house-sized debt cloud hanging over them, without even

having an asset they can sell.

As if that wasn't bad enough, millennials have a larger burden for retirement.

In ye olden days, the average American could expect 3 sources of income to support them

in their autumn years: A pension, social security, and personal retirement savings.

But thanks to shifting labor trends and shrinking unions, pensions are quickly becoming a thing

of the past, and it's giving this three-legged stool a major wobble.

And since we can't expect social security payments to substantially increase anytime

soon, younger people will be expected to make up the difference with larger retirement savings,

which means less cash on hand to put towards a house.

The shifting labor market has also led to more pressure to be geographically flexible,

instead of being tied down to one location.

And the importance of travel for young people is at an all-time high.

In the US, millennials rank travel as MORE important than home ownership and report that

they're more likely to set aside money for that rather than buying a home.

Considering these factors, it's no wonder millennials are viewing home ownership as

more of an option than a necessity.

So is it an option that's right for you?

Here are some questions to ask yourself:

1.

Can I get good mortgage terms?

Unless you've got hundreds of thousands of dollars sitting around in cash, you're

gonna have to borrow the money and pay for the privilege.

How much you'll pay in interest is determined by a number of factors, but generally speaking,

in order to qualify for terms that make homebuying a good investment, you'll need a consistent,

provable source of income, a credit score of 760 or higher, and a down payment at or

close to 20% of the home price.

If you can't meet these requirements, it might not be the right time to buy a home.

Will I have emergency money left over?

The money you have wrapped up in your house isn't liquid, meaning you won't be able

to get to it easily if you need it.

So if your A/C breaks down or your car needs repairs, and you don't

have any emergency funds set aside, the only thing you'll have to cling to is debt--which

is more of a lead weight than a life-vest.

So be sure to have at least three times your monthly expenses left over after your down

payment.

3.

Can I stick around for at least 5 years?

Buying a house that you have to sell again quickly probably won't end well.

You have to consider up-front costs like realtors and inspections.

Plus, at the beginning of your mortgage most of your monthly payment is going towards interest

-- meaning your debt isn't actually shrinking that much.

For many buyers, it can be a decade or more before that ratio is even 50/50.

So how do these factors shake out in a real world example?

Let's….

RUN THE NUMBERS!

This is Ramon.

Ramon has a good, steady job, he's been saving money and he's thinking about buying

a house for around $200,000.

He only has enough for a 15% down payment, and no emergency fund.

Also, there's a chance Ramon might decide to relocate to New York with his girlfriend

when she graduates from law school in three years.

By that time, Ramon will have only paid off around $9,000 of the loan principal.

If the home value increases by an average of 5%, he'll be able to sell for bit more,

but that's not counting the realtor fees, taxes, and upkeep.

If everything goes perfectly smoothly, Ramon will just break even.

But if just one thing goes wrong - like losing a job for 6 months or he has to replace his

home's roof or AC, it's a different picture.

Ramon might want to hold off on buying a house right now.

If you're like Ramon, don't freak out!

You could never buy a home but still be okay financially.

There are even some perks, like not being responsible for maintenance costs, and being

able to easily pack up and move if you get a better job opportunity.

But, investing is like exercise: some workouts deliver better results than others, but anything

is better than doing nothing.

So, if you're not going to buy a house, it's extra important that you're making

investments in other areas, like a 401(K), or a company that you own.

There's no sugarcoating it: When it comes to homebuying, Millennials got a tough deal.

But you can overcome that disadvantage by understanding your situation, and starting

to plan for it now.

And that's our two cents!

One of our favorite segments of Two Cents is "Run the Numbers!"

We take a financial concept and put it in the real world.

With real financial calculations.

It's pretty cool to see how small things can become big things over time!

From compound interest rates to hidden fees that stack up!

Maybe you want to see how much interest you'll pay over the lifetime of a mortgage.

Or how much you'd end up with if you quit your gym membership and invested that money instead.

With a little hands-on practice, you can master the art of personal finance too!

One fun, easy way to hone your financial math skills is at Brilliant.org

They offer hands-on, practical lessons in math and science.

Each lesson puts you in the driver's seat and allows you to "Run the Numbers" for your own life.

For more information about Brilliant, head to Brilliant.org/twocents

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