How much does family assistance impact homebuyers?

According to the 2014 Fannie Mae National Housing Survey, at least half of younger renters said the greatest obstacle to acquiring a mortgage are both down payments and closing costs.

As the housing market continues to gain momentum, home prices have risen. A recent study, The Role of Parental Financial Assistance in the Transition to Homeownership by Young Adults, reviewed how much parents’ financial influence impacted younger homebuyers.

The study found that a transfer of at least $5,000 from a parent to a child over a two-year time span increased the chances of a child purchasing a home, regardless of what the money was for (i.e. education).

When considering age, the biggest difference was that a child aged 35 to 44 is 7 percentage points more likely to become a homeowner than a child aged 20 to 24. In fact, a child aged 20 to 24 is not more likely to buy a home, regardless of financial assistance from their parents. Overall, a child aged 25 to 44 who has received a transfer from their parents is more likely to purchase a home than a child who has not.

Race, however, did impact the likelihood of homeownership. Hispanics are 3 percentage points and blacks are 7 percentage points less likely to become homeowners than non-Hispanic whites.

Marriage and college education are also factors contributing to the rate of homeownership, as both increase the likelihood.

Interestingly, parents’ income and education level did not have a positive impact on whether their child purchased a home. If a parent had a bachelor’s degree or higher, their children were actually less likely to purchase a home. On the other hand, children of parents without a bachelor’s degree are more likely to become homebuyers. However, the study noted this could be due to geography.

“Parental resources are a substantial benefit to young home buyers, with or without direct financial assistance. Young adults are more likely to transition into homeownership if their parents also are homeowners, and particularly if their parents are in the upper quartiles of the wealth distribution,” the report stated.

Overall, if parents make a financial transfer to their child, the likelihood of the child buying a home is increased by 2.4 percentage points.