By Jane Hodges - Reuters
About a third of first-time buyers in 2011 got either a gift (26 percent) or a loan (7 percent) from their families to help finance their home purchases, down slightly from 2010, but consistent with assistance levels seen during the last decade, according to data from the National Association of Realtors (NAR).
But industry observers think the level of parental generosity is even higher, with some giving children money for home purchases so far in advance of a loan application that the gift isn't disclosed to lenders, or, if they've got the resources, buying homes outright for their adult kids and setting up an after-the-fact intra-family loan agreement.
In November, all-cash buys among first-timers hit a high of 13 percent, according to Guy Cecala of Bethesda, Maryland-based Inside Mortgage Finance, a mortgage industry newsletter publisher and researcher. That's up from 6 percent in 2009, when IFM first began tracking it. While the company's surveys don't ask about the source of cash, Cecala said that when first-time buyers buy outright, it's likely their parents who are purchasing on the children's behalf.
What's encouraging these all-cash purchases now? Home prices are way down - with the median price in November 2011 at just $164,200, down 3.5 percent from a year ago, according to NAR. Mortgage interest rates, too, remain at all-time lows. According to mortgage researcher HSH, the average rate on fixed 30-year loans fell steadily from 5.1 percent at the start of 2011 to 4.09 percent in December.
Many first-timers use FHA loans, requiring a 3.5 percent down payment or 10 percent down payment with poor credit, or VA loans, which require no down payment, but are eligible only to military personnel.
Indeed, in some markets, without parental help, many first-time buyers wouldn't qualify for the best rates or even a loan on the types of property for sale. To qualify for loans backed by Freddie Mac or Fannie Mae, borrowers need a 740 credit score and a hefty 20 percent down payment — or else they'll pay private mortgage insurance and additional "risk-based pricing" fees on their loan, IFM's Cecala says. As the government rethinks the role of the two mortgage giants, these tighter lending standards may be here to stay, or be tightened further.
To be sure, many baby boomers want to help. More than a fifth of them have co-signed a home loan for an adult child or given a gift or loan to help them buy, according to a September survey by Better Homes & Gardens Real Estate and Research Solutions Inc. More than half of those earning at least $75,000 said they wanted to help their children finance a home purchase.