More Parents Are Helping Their Millennial Kids Buy Homes
Many millennials have been hit with hard economic times. The Great Recession, housing crisis, and diminished job options hit many millennials before they could even get established in a career and start to build up the funds necessary to purchase a home.
While the economy is slowly recovering, too many millennials are still unable to afford a home without assistance — and their parents are increasingly stepping up to fill the void. A recent survey by loanDepot shows that 17% of the parents of millennial children (defined here as between ages 18-35) expect to help their children buy a home within the next five years. That's an increase of over 30% compared to the previous five years, when 13% of parents expected to provide home-buying assistance.
Parental assistance ranges from down payment contributions to allowing children to move back into their homes — and there's an unusually large increase in those willing to welcome their children back home.
One-third of respondents said they would allow their children to stay home to save money for a home purchase, up from 11% in the previous five-year period. Meanwhile, another 22% of respondents would allow their children to move back home straightaway, compared to 8% in the previous five-year period. In total, over half of the parents expect their millennial children to either live with them indefinitely or until they can save up enough money for a down payment.
The majority of financial help will be from down-payment contributions. Half of respondents plan to help with down payments, with 8% of respondents paying at least 90% of the down payment. That support is down from the previous five-year period, where 65% of respondents covered some down payment costs and 20% covered at least 90% of the costs.
More parents are willing to pay other expenses so their children can save money for a home (30% as opposed to 25% over the past five years), with 18% focusing on excessive student loan debt burdens (compared to 11% in the past). Around 20% of parents are willing to help with closing costs, and the same percentage of respondents is willing to co-sign a mortgage loan with their children. That is about the same percentage of willing co-signers as in the past.
Where do parents get the money? The overwhelming source is from savings accounts. A little over two-thirds expect to draw from their savings to help their children, slightly down from 72% over the last five years. Meanwhile, twice as many parents as in the past five years expect to use funds from refinancing their own home (up to 8% from 4%), acquiring an unsecured personal loan (up to 8% from 3%), or borrowing from their 401(k) program (up to 4% from 2%).
Millennial children are looking at this help as a responsibility to be repaid. While 68% of the parents consider future assistance as a gift, only 29% of millennials agree. (Of course, if the support is down payment, it has to be acknowledged as a gift in order to qualify for a loan.)
If you are one of these parents helping your millennial children, we applaud your efforts — but please make sure you don't harm your retirement account or other retirement assets in the process. You don’t have as much time to recover from a large financial setback and your children may not be in a position to help you at the right time. Help as you can, but not more than you should.