Parental help
“Bank of Mom and Dad” a crucial resource for many young home buyers
While younger buyers are making up an increasing share of home purchases, many are entering the market with financial assistance from their parents.
A survey from the rental resource Apartment List found that about one out of every 10 millennial respondents—defined as those born between 1982 and 2004— received regular assistance from their parents to make their rent payments. Close to one in five respondents believed they need to rely on their parents for at least some of the money needed for a down payment in purchasing a home.
Sydney Bennet, a senior research associate at Apartment List, said millennial renters face challenges such as student loan debts and increasing housing expenses. She said that rents have increased 61 percent since 2000, and that home prices have grown 2.4 times as fast as wage growth for households headed by someone under the age of 35 since that year.
A total of 10.8 percent of millennials in the Apartment List survey said they receive assistance from their parents in paying their rent. Among millennials who weren't students, the share fell to 7.9 percent. A small share of renters over the age of 40—2 percent—also got help from their parents.
For nearly one-third of those receiving parental assistance, Mom and Dad paid their rent in full. Thirty-two percent said their parents covered their monthly rent, while 16 percent said they paid more than half of their rent.
Twenty-two percent of respondents said their parents contributed less than 10 percent of their rent. Eighteen percent received 10 to 29 percent of the money for their rent from their parents, and 12 percent collected 30 to 49 percent of this monthly expense.
Parents paid varying amounts to help out their children. Thirty-one percent of millennials received less than $100 a month, while 20 percent collected $8,400 a year – $700 a month. One in 10 respondents said their parents gave them $1,000 or more toward rent.
Bennet said such assistance can have a number of benefits for young renters. In addition to being able to live in rental housing they wouldn't be able to afford on their own, parental assistance also allows them to pay down student debt faster and save up money for a down payment on a home.
Down payment assistance from a parent was more common, with 17.1 percent of millennials saying they expect a parent will gift them money to help buy a home. About one in three believed their parents would cover at least 30 percent of the down payment, including 15 percent who expected their parents to contribute 30 to 49 percent of the payment, 9 percent who believed they will cover somewhere between half and 99 percent of the payment, and 4 percent who thought their parents would offer the entire initial sum for a home purchase.
Most respondents—43 percent—figured their parents would provide 10 to 29 percent of the down payment. Twenty-nine percent said their parents would likely contribute less than one-tenth of the money required for the payment.
One-third of respondents said they don't expect a parental gift towards a home purchase to exceed $1,000. Another 15 percent said they believe their parents will give them $10,000 or more to help buy a home, while 4 percent anticipated $40,000 or more as a contribution.
The survey also found varying shares of parental assistance between 12 different
metro areas. Parents were least likely to assist their millennial children in Washington, D.C., where only 7.1 percent said their mother and father helped with their rent. Phoenix, Ariz., and Denver, Colo., had the highest share of parental assistance with rent at 14.5 percent.
Millennials in Denver were most likely to expect their parents to chip in for a down payment on a home, with 22.4 percent saying they will likely get some help for the down payment. Those in Atlanta, Ga., were most likely to say they would have to scrape together a down payment; only 8 percent said their parents are likely to help them with this expense.
The National Association of Realtors’ Home Buyer and Seller Generational Trends study for 2018 found that millennials made up 36 percent of home purchases between July 2016 and June 2017. This was the fifth consecutive year that buyers ages 37 and under made up the largest share of home purchases.
Three-quarters of millennial buyers in that report said their personal savings was a source of funding for their down payment, more than any other generation. Twenty-three percent said a gift from a relative or friend contributed to the down payment, also the largest share among all generations.
Buyers who use gifted money as part of a home purchase are encouraged to document the gift with a letter from a donor. This helps assure a lender that the donor does not expect the money to be repaid, since such a loan would affect the buyer’s debt-to-income ratio.
If a parent wishes to loan a child money for a home purchase instead, the terms of the loan should be clearly spelled out in writing. The legal site Nolo says these should include details on how much will be borrowed, the interest rate on repayment, the expected repayment plan, and any penalties for late or missed payments.
Apartment List’s survey was fielded to more than 13,000 respondents between Aug. 23, 2017 and Feb. 12, 2018. The site cautioned that the results may not be an accurate representation of the national population since the survey was app-based, conducted online, and skewed toward renters in large multifamily properties.