Bank of Mom, Dad Growing More Important

October 26, 2015

Younger home buyers looking for a down payment on a home are turning to their parents for help.

The use of loans and gifts from family and friends to help purchase a home rose significantly during the recession – from 8 percent of homes bought in 2007 to 21 percent of homes bought in 2009, according to data from the Federal Reserve Board’s 2014 Survey of Household Economics and Decision-making.

The numbers have moved even higher since: 27 percent of first-time home buyers in 2013 received a cash gift from relatives or friends for a down payment, according to the National Association of REALTORS®. That's up from 24 percent in 2012, and it also marks the highest share since NAR began tracking such data in 2009.

The “Bank of Mom and Dad” was particularly important for home buyers during the worst years of the recession and has continued to become a critical way many first-time home buyers are funding their home purchase, particularly as credit availability remains tight and the ability to save for a down payment is challenged by high rents and high student loan debt, the Fed’s study suggests.

An analysis of the study by Zillow found that more first-time buyers are relying on down payment assistance from social networks today than a decade ago. Among presumed first-time buyers pre-recession, 11 percent received down payment assistance from their network of family or friends compared to 22 percent post-recession. First-time buyers are also more likely to now rely on personal savings and less on second mortgages than they did during the recession.

Reliance on down payment assistance from social networks appears to be the most important to middle-income households, Hispanics, and Asians, according to Zillow’s analysis.

Assistance on down payments from parents seems to be more common among some races than others. For example, the study showed that those identified as “other, non-Hispanic” group—presumably mostly Asians--in the SHED data received the most help buying a home from their social networks over the past decade with 23 percent of these buyers receiving a loan or gift from family or friends between 2005 and 2014. Hispanics also were more likely to get down payment assistance from family and friends, at 17 percent over the same time period. Non-Hispanic blacks were the least likely to receive assistance at 7 percent.

Source: “Homeownership Help: The Growing Importance of the Bank of Mom and Dad,” RISMedia (Oct. 25, 2015)