By Tony Wittkowski | Business Reporter | The Herald-Palladium
ST. JOSEPH — While the economy is still in recovery, many millennials are unable to afford buying a home of their own.
This has led to a national trend where parents are stepping in to fill the void more than in previous years.
A recent survey by loanDepot shows 17 percent of the parents of millennial children – defined as between ages 18-35 – expect to help their children buy a home within the next five years. That’s an increase when compared to the previous five years, when 13 percent of parents expected to provide home-buying assistance.
Parental assistance defined by the survey ranged from contributing to down payments to allowing children to move back into their homes.
One-third of the survey’s respondents said they would allow their children to stay home to save money for a home purchase, up from 11 percent in the previous five-year period.
Mark Mawhinney, an associate broker at Pier Realty in St. Joseph, said while that might be a national trend, he has rarely seen that much parental assistance in Southwest Michigan because lending laws have become so strict.
“Buying a home is like running through a mine field,” he said. “You’ve got the home inspection process and determining the condition of the home. There are any number of pitfalls that can sidetrack your transaction.”
The majority of financial help would normally come from down payment contributions.
Half of respondents said they plan to help children with down payments, with another 8 percent saying they would pay at least 90 percent of the down payment. That support is down from the previous five-year period, where 65 percent of respondents covered some down payment costs and 20 percent covered at least 90 percent of the costs.
The survey shows more parents are willing to pay other expenses so their children can save money for a home – 30 percent as opposed to 25 percent in the past five years – with 18 percent focusing on excessive student loan debt burdens.
When Mawhinney does come across helping parents for a client who is looking for a home, he said they tend to be involved with remodeling and redecorating.
“Parents always help, but it’s not always financially,” he said. “They show up to a viewing, maybe prior to an offer. It’s a relatively small amount that relies on their parents for financial help. They’ll come over and help remodel, but to be on the deed and mortgage is another story.”
According to the survey, about 20 percent of parents are willing to help with closing costs, and the same percentage of respondents are willing to co-sign a mortgage loan with their children. That’s about the same percentage of willing co-signers as in the past.
Finding ways to help
When it comes to helping their millennial children, the overwhelming source parents go to is their savings accounts.
A little over two-thirds expect to draw from their savings to help their children, slightly down from 72 percent over the last five years. Twice as many parents in the past five years use funds by refinancing their own home, acquiring a personal loan or borrowing from their 401(k).
Mawhinney said this can be attributed to the lack of feasibility in getting a loan as a millennial – especially if the young adults have bad credit.
“Financing has become so strict today. It’s become more cumbersome than ever to get a loan,” he said. “More often than not, you have to use your own money. It’s difficult for mom and dad to do anything, unless they have a document saying this is a gift with no repayment obligation. If money suddenly appears from no where, lenders want to know where you got it.”
The majority of millennials who were surveyed are looking at this help as a responsibility to be repaid.
While 68 percent of the parents consider future assistance as a gift, only 29 percent of millennials agree.
Chelsea Armbrustmacher, who bought her first home at the age of 27, admits it’s scary knowing she is paying for everything on her own. However, the St. Joseph resident said she would never ask her parents to help pay for a home.
“I had a lot of friends whose parents were paying their way through college, whereas I had to work part time once I entered nursing school,” Armbrustmacher said. “I’ve never liked to borrow money from people. I don’t like having to rely on people, so I guess it’s kind of a pride thing.”
Eric Becker, 29, said the only help he received from his parents was getting their opinion on how he should finance his first home.
“I just talked to him about different financing options, what he did in the past, what to look for,” Becker said. “He told me not to be concerned with uncertainties. As far as getting money to buy a house, I never asked.”
(Author’s Note: This article was originally published on Oct. 11, 2015)