Asking family for down payment help? Join the club!

Millennials are living at home longer to avoid paying high rent or to save for their own down payment. This is not news. Millennials are even asking their parents to refinance their own home in order to help with all-cash offers to win bidding wars. You may have already heard about this one also.

But did you know that Millennials are hardly alone, at least when it comes to receiving home-buying assistance from family?  In ValueInsured’s latest Modern Homebuyer Survey, it is reported that nearly 1 in 4 interested homebuyers plan to seek down payment help from a family member. What’s more interesting is that the pattern is near universal, across demographic segments.

Overall, 2 in 3 (67%) interested homebuyers who plan to buy a home in the near future plan to obtain their down payment from personal savings or investments, making it the most popular source of down payment. 23% plan to seek down payment help, in form of a loan or a gift, from a family member:

  • Just over 1 in 3 (34%) Millennials plan to seek down payment help from a family member. Interestingly, 44% also plan to obtain a loan from a bank or a financial institution as their down payment, which signals many plan to carry a secondary loan to finance their future home.
  • This may come as a surprise: 29% of all Gen-Xers who plan to buy a home in the near future plan to obtain a loan or gift from a family member to fund their down payment. Many of these Gen-Xers are parents and have $100,000+ household income. This paints a different picture of housing reliance on family, beyond the clichéd stereotype of a slacker twenty-something living at home and asking for financial help.
  • Among interested homebuyers with a college-plus education, 25% plan to rely on family at least partially to fund their down payment. 24% of interested homebuyers with HHI of at least $100,000 plan to do the same.
  • Men and women are nearly equally reliant on family for down payment, with 22% of all men and 24% of women who plan to seek family help.
  • Overall, 28% of interested homebuyers who self-identify as of Hispanic or Latino heritage plan to ask their family for help.
  • Among starter-home buyers, 36% plan to ask family for down payment help. Interestingly, 27% of upgrade-home buyers, who presumably have accumulated home equity in their current home, plan to do the same when they buy their next home.

In some of the nation’s most expensive housing markets, starter homebuyers plan to rely heavily on family help to come up with adequate funds for a down payment. The top 5 states where the family is most heavily leaned on for starter-home down payment are:

  1. Washington: 43%
  2. California: 42%
  3. Florida: 34%
  4. Texas: 33%
  5. New York: 31%

Going back to the Wall Street Journal reporting at the beginning of this article, it documents the latest phenomenon of what it calls a “mortgage merry-go-round” of refinancing a parent’s home to finance an all-cash purchase of an adult child’s home, before the adult child refinances their new home to pay back their parent. With such heavy reliance on a parent's asset to fund a child’s home, what happens when the newly bought home is not appraised for the purchase price – which is rather common – or when an adult child’s home loses value during a downturn, and does not sell for enough to repay an aging parent’s retirement savings? As more parents contribute to a higher stake in their adult children’s home purchases, not only do they become a stronger influencer, they also find themselves exposed to higher risks of loss, if the homebuyers do not have a fool-proof exit plan for the home in this unpredictable market.