Most of us have heard this data point: more Millennials are now living at home with their parents than in any other living arrangements, or at any other time in modern history. Last year, the US Census estimated that one in three Millennials – or 24 million 18- to 34-year-olds – live in their parents’ home.
It’s fair to say Millennials’ parents have been generous with them. And that generosity extends beyond sharing their home well into a child’s adulthood. Sometimes, parents help their adult child buy a home by providing financial assistance. In ValueInsured’s latest (Q4 2017) Modern Homebuyer Survey, 17% of all surveyed Millennial homebuyers say they plan to rely on a loan or a gift from family member(s) to fund the majority of their down payment. It was recently reported that nearly 1 in 4 (23%) of all purchase loan originations in the U.S. now require a non-spouse co-borrower(s)’ – in most cases a parent’s – credit to afford the loan approved.
Millennials and Boomers on home buying gifting
That said, many Millennials seem to have plans to reciprocate, or even outdo their parents’ generosity:
- According to ValueInsured’s survey, 62% say they will help their parents financially with a home purchase one day, if their parents need the help;
- Nearly 6 in 10 (59%) Milllennials also say they will help their own adult children financially with buying a home
In contrast, Baby Boomers responded to the same survey with more hesitation in helping:
- Only 1 in 3 (33%) say they have helped or will help a parent financially with buying a home, if the help is needed – this level of willingness is nearly half of the enthusiasm shown by Millennials on the same measure;
- 42% of Baby Boomers say they have helped or will help their adult child financially with buying a home, if the help is needed – this represents a seventeen percentage-point deficit compared to Millennials
While on paper, Millennials seem to have more generous intentions, Baby Boomers have shown with their action that many are willing to help their children buy a home. The Wall Street Journal cited an emerging trend where Baby Boomers are refinancing their homes to free up equity in order to help their adult children become homeowners. Generosity aside, this could be a dangerous game for Baby Boomers to take on a new home mortgage during a time when their income could be winding down, or when many need to rely on their home equity to fund their retirement. Thanks to recent years’ higher home value, their home equity too might have increased substantially. However, if the market corrects, these generous parents could see both their own home value and that of their children’s decline. It is a scenario where multiple generations could be negatively impacted for the sake of one home purchase and something any "gifter" should consider.