What do you think about this increasingly common yet non-traditional trend? Would you loan a family member money for a down payment? On the flip side, would you accept money from a family member?
The percentage of home buyers relying on friends and family to give them money for a down payment tripled during the recession and is still higher than before the housing crisis, according to a Zillow analysis of federal data. During the recession in 2009, 21 percent of homes were bought using a loan or gift as the down payment. That number fell to 13 percent in 2014. But in 2007, pre-recession, just 8 percent of home purchases utilized help from friends and family.
The data highlights a little-discussed barrier to homeownership: a lack of savings. In most markets, people would spend less of their income on a house payment than on a monthly rent payment, but in order to buy, first-time buyers need cash to put down — and that can be difficult. That’s why, especially in the worst years of the recession, a growing number of home buyers turned to friends and family for help.
Among households that bought a home in 2014, 25 percent of middle-income earners used family or friends for help with down payments. Only 15 percent of low-income and 16 percent of high-income earners got help for a down payment.
“Securing a down payment has always been one of the main hurdles younger buyers need to clear when transitioning to homeownership, and it’s gotten harder in recent years thanks in part to rising rents, high student debt and weak income growth,” said Zillow Chief Economist Svenja Gudell. “But younger Americans are finding ways to clear that hurdle by going to family and friends for help. What’s worrisome are the implications of growing inequality: the social networks supporting low-income buyers may not be able to provide adequate help, while higher-income buyers may not need help in the first place.”
First-time home buyers are most likely to rely on family and friends for down payment assistance. Rents are high, credit availability is tight, and many have huge amounts of student debt, making that first home purchase especially difficult because cash isn’t available from a previous home sale. Home values have increased as well, causing the down payment amount to rise along with it.
The “Bank of Mom and Dad” will continue to be an option for those struggling to save the 20 percent down that’s commonly needed for a home purchase, but there likely won’t be the same level of dependence as during the worst years of the recession.
To learn more about this study, check out the brief on Zillow Research.