The Growing Importance of the Bank of Mom & Dad

  • The use of loans and gifts from family and friends to help purchase a home increased sharply during the recession – from 8 percent of homes bought in 2007 to 21 percent of homes bought in 2009. The share has since declined, to 13 percent in 2014.
  • Hispanics and Asians are more likely to receive down payment assistance from family and friends than blacks and whites.
  • Presumed first-time homebuyers who bought in the years after the recession were roughly twice as likely to have received down payment assistance from friends and family as those who bought prior to the recession.

The Bank of Mom and Dad is increasingly open for business – and is increasingly necessary – for younger homebuyers looking to secure a down payment, particularly for middle-income households, presumed first-time homebuyers, Hispanics and Asians.

We’ve been hearing anecdotally for some time that the combination of rising home values, slow income growth and still-tight credit markets has resulted in a growing reliance on intra-family loans and gifts meant to be used as down payments for younger home buyers. Now, data from the Federal Reserve Board’s 2014 Survey of Household Economics and Decisionmaking (SHED) helps confirm the stories.

The growing importance in the home-buying process of loans and gifts from family and friends underscores both the challenge that securing a suitable down payment represents for younger homebuyers, and their resourcefulness in finding ways to clear the down payment hurdle. The data also raise difficult questions around inequality in the housing market, as the lowest-income buyers likely needing the most help from family and friends to buy a home may not have access to the same kinds of social networks as their wealthier peers.

The SHED asks homeowners to identify the sources of the funds used for their down payment when they purchased their current home. There are five non-exclusive response options (homeowners can identify more than one source of funds):

  • Proceeds from the sale of a previous home
  • Personal savings
  • A loan or gift from family or friends
  • A second mortgage
  • Financial assistance from a government program or non-profit organization.

Respondents are also given the option of indicating that no down payment was made.

The use of loans and gifts from family and friends to help purchase a home increased sharply during the recession – from 8 percent of homes bought in 2007 to 21 percent of homes bought in 2009. The share has since declined, to 13 percent in 2014, but remains slightly above where it was prior to the recession.

Read the full article at: http://www.zillow.com/research/down-payment-help-parents-11018/