Families Step in as Lenders to Help Kids Buy a Home
February 19, 2014
Employment troubles, large student loan debt, and tight underwriting standards have been major hurdles holding back potential first-time home buyers in their 20s and 30s, the Los Angeles Times reports.
In 2012, Americans who were 30 to 34 had the lowest home ownership rate of any similarly aged group in recent decades at 47.9 percent, according to demographer Chris Porter of John Burns Real Estate Consulting. As comparison, Americans born between 1948 and 1957 had a 57.1 percent ownership rate by the time they were in the 30 to 34 age group.
Studies have shown a strong desire among 20- and 30-somethings to buy a home, but their finances are holding them back from making such a move. As such, more relatives are stepping in to provide assistance with downpayment and closing costs. Twenty-seven percent of first-time buyers received a money gift from relatives last year.
In some cases, instead of just handing over the money, some family members also are serving as “mini-lenders” themselves to help their adult children purchase a home, The Los Angeles Times reports. The family members may provide a second mortgage or first mortgage that are designed to deal with the young relative’s financial hurdles too, like paying off student loans to reduce debt-to-income ratios (which has been a hurdle for many in qualifying for a conventional loan). What’s more, the loans can provide annual returns to family members that have been known to perform better than money-market funds or bank deposits.
Companies are stepping in to help structure and service these intra-family transactions. For example, National Family Mortgage says it’s business has been booming in this area. It has serviced more than $155 million of intra-family transactions in the last two years and expects to service $150 million in volume in 2014 alone.
Source: “Finding Ways to Help Young Adults Make Their First Home Purchases,” The Los Angeles Times (Feb. 16, 2014)
Updated: August 11, 2020