While home ownership by young people has been on the decline for the last few decades, a new study indicates that an increasing number of millennials are choosing to finance a home purchase with a loan from their 401k.
According to new research by Bank of the West, a banking subsidiary of BNP Paribas, roughly 20 percent of millennials, ages 21-34, who plan to buy a home expect to use funds from their retirement 401k to do so. Meanwhile, 30 percent of those who currently own a home have already done so.
These numbers are much greater compared to the percentage of Baby Boomers (ages 52-70) who used 401k funds to buy their homes (7 percent) or are planning on dipping into their 401k to finance a home purchase (8 percent).
According to a top official at Bank of the West, millennials are not doing themselves any favors when they choose to finance home purchases with their retirement 401k.
“Millennials are so eager to become homeowners that some may be inadvertently cutting off their nose to spite their face,” said Ryan Bailey, who serves as Head of the Retail Banking Group at Bank of the West. “The fact that nearly one in three millennials who already own their homes have dipped into their retirement nest eggs to finance their down payment is alarming.”
The same survey also indicates that an increasing number of young people are receiving financial assistance from a family member when making their first home purchase. While just 3 percent of Baby Boomers who own homes reported having received money from a family member to do so, roughly 16 percent of millennial homeowners reported having received some form of financial assistance from a close relative for purchasing their home.
When asked about factors that were most important in selecting a new home, just 54 percent of millennials cited cost of living as a top concern, while 72 percent of Baby Boomers highlighted cost of living as a top priority. Additionally, millennials were significantly less likely to be concerned about the weather where they live when compared to older generations, with only 23 percent of millennials saying weather was a significant factor in choosing where to live, compared to 54 percent of Baby Boomers who said weather was very important in deciding where to live.
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