The first home buyers and bank moms and dads

Clare Losey

Those who buy real estate for the first time usually do not have the money to pay large down payments for the house. According to a survey by Consumer Finances, the average net worth of tenants in 2019 was $ 6,300. Meanwhile, U.S. Census Bureau figures suggest that nearly half of all U.S. tenants were under the age of 30; another quarter were aged 30-44.

Lower wealth among first-time buyers is in line with two trends:

  1. First-time buyers make up a higher proportion of borrowers with federally secured mortgages (ie FHA and VA loans) that require lower down payments than regular mortgages. The decline in the supply of lower-priced homes suggests that demand for federally secured mortgages is likely to increase among buyers for the first time.

  2. First-time buyers can rely on advance assistance from government entities, eligible family members, and other resources to help them with the down payment. The decline in the supply of lower-priced homes and expectations of sustained higher house prices in the near future suggest that first-time buyers will increasingly rely on advance help to achieve home ownership.

In 2010, just over 30 percent of mortgage borrowers used repayment assistance to purchase FHA. By 2020, that number had jumped to about 40 percent, with cash donations from eligible family members accounting for the largest share (almost 60 percent of the total down payment).

Meanwhile, the National Association of Realtors announced in 2020 that 24 percent of millennial homeowners had received a down payment from a parent or relative when buying a home.

What helps to increase the assistance with advance payments? Strong demand for home ownership and declining supply of lower priced homes, for starters. Other factors include:

  • relatively stagnant incomes and wages,

  • rising rents,

  • student loan debt and

  • the cost of medical care and health care, all of which reduce the ability of households to save.

David Berry

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