Gen Y is relying less on Mom and Dad for mortgage help — here’s why
For years, the media has been telling us that millennials don’t place a high priority on buying a home, that they are delaying homeownership and household formation, and, most importantly, that they can’t afford to purchase a property — especially without aid from their parents. Well, here’s some good news for a change: Apparently, Gen Y has got its housing groove back, without Mom and Dad having their back as much.
A new report by Redfin reveals that only 1 in 10 millennials polled said they planned on pursuing financial help from their parents to fund their mortgage, down from nearly 2 in 5 (17 percent) tallied last year. Additionally, to help pay for their mortgages, fewer millennials plan to seek co-ownership with a non-spouse/ non-partner (7 percent in 2019 vs. 14 percent in 2018), get a roommate (11 percent vs. 14 percent), or rent out their home via services such as Airbnb (10 percent vs. 12 percent). In a sign of greater selfreliance, more expect to work a second job instead (31 percent vs. 29 percent).
“Data also show that 51 percent of millennial homebuyers have plans to use strategies such as financial help from parents or non-spousal homeownership to cover mortgage payments — down from 60 percent the previous year, which is significant,” says Daryl Fairweather, chief economist at Redfin in Seattle.
She says this trend is unsurprising when you consider rising household incomes for workers in their 20s and 30s.
“They simply have more capital to put toward big financial commitments such as mortgages, largely thanks to millennial women who are working more and earning more than previous generations,” Fairweather adds. “What we’re witnessing now is that millennials are becoming more financially secure and finally checking off key milestones they’ve postponed, like getting married, having children and purchasing a home.”
Benjamin Ross, Realtor with San Antonio-based Mission Real Estate Group, says this trend demonstrates a sign of greater maturity.
“The millennials who are going places in this world know they have to be independent,” he says. “Also, we know that they have taken on huge amounts of college debt. Perhaps they’ve become more used to the idea of carrying long-term debt and have become better at managing it, which explains why they would be more comfortable with taking on a mortgage.”
It’s also possible that many Gen Yers have tried to borrow money from their parents but were turned down.
“Maybe Mom and Dad said, ‘No — it’s time to move out of the basement, get a second job and buy your own house like we did, a house you can afford,’ ” says Philip Seagraves, director of the Real Estate Program at Middle Tennessee State University in Murfreesboro, Tennessee. “Perhaps millennial parents are wising up and pushing back.”
Consider that, per a Motley Fool study published earlier this year, 7 percent and 8 percent of millennials surveyed, respectively, said their parents fully and partially fund their mortgage/rent; only 37 percent qualified as financially independent from their parents; and just over 1 in 5 said their parents urged them to become more financially self-reliant. The average age when millennials achieve financial independence is 31.
Of course, there’s nothing wrong with asking for assistance when you really need it. But requesting housing funds from father and mother should be handled carefully.
“I would always recommend a gracious and realistic approach that’s also backed by a solid plan,” recommends Fairweather. “Instead of asking for a chunk of mortgage cash, consider mapping out the amount you would need each month, and be honest about your timeline. Articulate your financial plans that would eliminate the need for their contribution by a certain time point.”
But if you pursue this option, “don’t take advantage of the relationship. Take that debt more seriously than any other, and try paying it back when you can,” advises Seagraves.
If you’re eager to purchase a home but need help beyond your family, check out available down payment assistance programs (visit downpaymentresource.com for options); if you already own, look into a mortgage refinance if you can lock into a lower rate that will save you money and you plan to stay put for at least a few more years.