More first-time homebuyers get help with down payments from family and friends

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Paul Davidson, USA TODAY
Published 6:02 a.m. ET Feb. 3, 2021

Having enough money for the down payment on a house is no small thing, but it seems a lot of millennial homeowners aren’t prepared for what comes next.

The housing market is booming and much of the surge is due to first-time homebuyers. But amid a raging pandemic and soaring home prices, their parents also deserve a heap of credit.

More than half of Americans who bought their first home in 2020 said family or friends helped them with the down payment, according to a survey of 1,000 recent and prospective buyers conducted January 7-11 by HarrisX for realtor.com.

In July, just 26% of first-time home buyers who purchased during the prior 12 months said they got assistance from family or friends, according to a separate survey by the National Association of Realtors (NAR).

Different surveys can have varying methodologies. And the NAR poll asked buyers if they received a gift or loan while the realtors.com survey only specified a loan. But realtors.com chief economist Danielle Hale said she believes most respondents didn’t distinguish between a loan or gift.

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Buyers ask for help during COVID

Rather, she said, high-flying home prices, low interest rates and the financial strains inflicted by the COVID-19 crisis have led more buyers to seek help from relatives or friends.

“The pandemic has shifted things in a big way,” Hale says.

Nick Libert, owner of Exit Strategy Realty in Chicago, says first-time buyers are racing to take advantage of mortgage rates that have been pushed to historically low levels during the health and economic crisis. Since they’re buying before saving up all the cash they need for a down payment, many are turning to family or friends.

Bryce Corey, 24, a software developer, and his girlfriend hunted for a Denver-area starter home costing under $350,000 for several months beginning last summer. But they were outbid eight or nine times, he says.

 (Photo: Getty Images)

“It was definitely disheartening,” he says. “It kind of knocked us back a little bit each time.”

More first-time homebuyers get help with down payments from family and friends

Bryce Corey (Photo: Handout)

As a result, Corey’s parents agreed to provide a roughly $10,000 loan to enhance his 5% down payment and boost his chances of winning a bidding war.

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“It made us all feel better (that it was a loan rather than a gift),” Corey says. “I wouldn’t want to just take their money and run with it.” Ultimately, he couldn’t find a suitable house and decided to move back in with his parents in Lansing, Michigan, to sock away more money before resuming his search in May, but their offer is still good, he says.

Home prices rise

The median price of an existing U.S. home reached $309,800 in December, up 12.9% from a year earlier, according to NAR, as low housing supplies drove up prices. Nationally, there was a 1.9 month supply of homes on the market in December — the time it would take to run out of homes for sale if no new units were added. That’s an all-time low and down from a three-month supply a year earlier,

At the same time, the COVID-19 crisis prompted the Federal Reserve to slash interest rates early last year, pushing down mortgage rates.

Average 30-year fixed mortgage rates stood at 2.7% last week, nearly a percentage point lower than a year earlier, according to Freddie Mac. If buyers can get aid with their down payment from family or friends to defray higher prices, the low rates can allow them to cut their monthly mortgage costs, Hale says.

Millions of millennials who have been putting off marriage and living with their parents are finally ready to settle down and buy homes, Hale says. Nearly 5 million millennials turned 30 last year, according to the Census Bureau and realtor.com. Thirty-one percent of home purchases in December were by first-time buyers, NAR figures show. At the same time, the pandemic has spurred many Americans who are working remotely to flee cities for bigger houses in more sparsely populated suburban and rural areas, fueling housing sales.

“People feel now is the right time,” she says. “They’re trying to make it happen sooner rather than later.”

Eighteen percent of the first-time buyers surveyed by realtor.com said they got help from their parents, while 12% cited siblings; 14%, extended family; and 8%, friends.

Can’t afford a down payment

All told, 44% of first-time buyers didn’t have enough for a down payment last year, the survey shows. Half of first-time buyers squirreled away enough in less than three years by setting aside a portion of their paycheck each month, cutting out discretionary spending and saving lump-sum money like tax refunds.

Other survey findings:

► Buyers had to compromise in 2020, with 21% expanding their searches to less expensive neighborhoods, 20% raising their budgets and 18% cutting out features they desired, like a garage, pool or finished basement.

► Forty-nine percent of first-time buyers and 39% of prospective first-time buyers fell in love with a home but discovered they were outbid.

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